How a Hong Kong Hike Revolutionized Crypto Trading Forever

In 2015, on a hiking trail in Hong Kong, the concept of a perpetual swap, also known as a perpetual future or 'perp,' was conceived. Ben Delo, co-founder of BitMEX and a mathematician, was discussing a problem with a friend named Bavik, a derivatives trader. BitMEX had tried various approaches, including quarterly, monthly, weekly, and even 24-hour futures contracts, but customers continued to complain about positions closing unexpectedly. They wanted a product that resembled spot trading but offered the leverage of a derivatives exchange. Delo asked, 'What if a future never expired?' Bavik replied that it would be mathematically worth infinity. However, he suggested charging traders the bitcoin overnight rate to solve the issue. Delo built it, inventing one of the most influential financial products of the 21st century. The perpetual swap was launched in May 2016, with a daily funding rate that kept it anchored to the spot price. Initially, the funding rate was derived from external lending markets, but it was later adjusted to a dynamic approach that looked inward at the swap's trading activity. This solution allowed market makers to anchor the swap back to the spot price, creating a dynamic equilibrium. By 2017, BitMEX had become the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its core. The product's success led to its adoption by other major exchanges, and it is now considered one of the most successful financial innovations in history, with an estimated $40-50 trillion in annual turnover.