The concept of the perpetual swap, also known as a perpetual future or 'perp,' was born on a hiking trail in Hong Kong in 2015. Ben Delo, BitMEX co-founder and mathematician, was discussing a problem that had been bothering him for months with his friend Bavik, a derivatives trader. At the time, BitMEX was experimenting with various futures contracts, including quarterly, monthly, weekly, 48-hour, and even 24-hour contracts, but none were meeting customer needs.
Customers were complaining about positions closing without warning, and they wanted a product that resembled spot trading but offered the leverage of derivatives. Delo asked, 'What if a future never expired?' Bavik's response was that it would be mathematically worth infinity, as the carrying cost would compound indefinitely without an expiry date. However, Bavik suggested charging traders the bitcoin overnight rate, similar to LIBOR in traditional finance.
The issue was that this rate did not exist at the time. Delo decided to build it, inventing one of the most significant financial products of the 21st century in the process. To understand the impact of the perpetual swap, it's essential to consider what BitMEX was trying to achieve before becoming the most liquid bitcoin market. Founded in 2014 by Delo and Arthur Hayes, the exchange aimed to provide institutional hedgers with a platform to manage their exposure.
However, instead of institutions, the exchange attracted sophisticated retail traders seeking high leverage and speculation opportunities. By Halloween 2015, BitMEX was offering 100x leverage, thanks to a real-time margining system built by Delo. The perpetual swap launched in May 2016, with a core mechanic that was straightforward: 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, with BitMEX taking no cut.
The early funding rate was derived from third-party lending markets but eventually needed to be dynamically adjusted to reflect the demand for long exposure on BitMEX. The solution involved measuring the gap between the swap and spot prices over an eight-hour window, treating it as an implied basis, and back-calculating the annualized rate. This rate was then charged at the end of the next eight-hour window, 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 center. The product's design concentrated liquidity, allowing market makers to consolidate their capital into one instrument. Competitors took notice, with some copying the concept and others building upon it.
Today, every major derivatives exchange offers a perpetual swap, each based on the funding rate architecture that Delo developed. The fact that other exchanges have copied the swap is a testament to its financial innovation, with Delo estimating that it now facilitates $40-50 trillion in turnover annually. BitMEX chose not to patent the perpetual swap, focusing instead on building and letting the market decide its value. Now, traditional finance regulators are taking notice, with the CFTC reportedly making room for perpetual swaps and speculation that the CME could list them on equities.
For Delo, this is the final validation of a concept that started as a question on a hillside above Hong Kong, asked by someone who had grown tired of watching customers complain about disappearing positions.