In 2015, during a hike in Hong Kong, the concept of the perpetual swap, also known as a perpetual future or 'perp,' was conceived. Ben Delo, a mathematician and co-founder of BitMEX, was discussing a problem with his friend Bavik, a derivatives trader, that had been bothering him for months. BitMEX had tried various approaches, including quarterly, monthly, weekly, 48-hour, and 24-hour futures contracts, but none were successful. Customers complained about their positions being closed without warning, seeking a product that resembled spot trading but offered the leverage of a derivatives exchange.
Delo asked, 'What if a future never expired?' Bavik responded that it would be mathematically worth infinity. However, he suggested charging traders the bitcoin overnight rate to address this issue. Delo built this concept, inventing one of the most significant financial products of the 21st century.
Initially, BitMEX aimed to provide a platform for institutional hedgers, but it ended up catering to sophisticated retail traders seeking high leverage and speculation. By Halloween 2015, the exchange offered 100x leverage, thanks to a real-time margining system developed by Delo.
The issue with futures contracts was the basis, or premium, which confused many in the crypto space. BitMEX's customers struggled to understand why bitcoin prices were higher on the exchange. Delo's conversation on the hiking trail led to the development of the perpetual swap, which launched in May 2016.
The core mechanism involved a futures contract with no expiry date, anchored to the spot price through a daily funding rate. Longs paid shorts, or vice versa, depending on whether the swap was trading above or below spot. The early funding rate was derived from third-party lending markets but eventually became dynamic, looking inward at the swap's trading activity. This solution, which measured the gap between the swap and spot prices over an eight-hour window, was elegant and effective.
It gave market makers notice of the calculation and charge, allowing them to anchor the swap back to the spot price. By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its center. The product's design concentrated liquidity, making it a more liquid market with tighter spreads. Competitors noticed, and every major exchange in crypto now offers its own perpetual swap, built on the funding rate architecture that Delo developed.
The fact that other exchanges have copied the swap validates its financial innovation, with turnover reaching $40-50 trillion annually. BitMEX chose not to patent the perpetual swap, focusing on building instead. Now, traditional finance regulators are taking notice, with the CFTC reportedly making room for perpetual swaps under its framework, and speculation that the CME could list them on equities. For Delo, this prospect is the final validation of a concept that started as a question on a hillside above Hong Kong.