In 2015, a casual conversation on a hiking trail in Hong Kong sparked the creation of the perpetual swap, a financial innovation that would change the face of cryptocurrency trading. Ben Delo, co-founder of BitMEX and a skilled mathematician, was discussing a persistent problem with his friend Bavik, a derivatives trader.
Despite experimenting with various futures contracts, including quarterly, monthly, and even 24-hour contracts, customers continued to express frustration with positions closing unexpectedly. Delo's question, "What if a future never expired?" led to a pivotal moment. Bavik's response, "Mathematically, it would be worth infinity," highlighted the technical challenge, but also paved the way for a solution. By introducing a daily funding rate, where longs pay shorts or vice versa, the perpetual swap was born.
This mechanism allowed the contract to remain anchored to the spot price, providing traders with the leverage they desired. The launch of the perpetual swap in May 2016 marked a significant turning point for BitMEX, transforming it into the most liquid bitcoin market globally.
The product's success can be attributed to its ability to consolidate liquidity, resulting in tighter spreads and a more efficient market. As the concept gained popularity, other exchanges followed suit, adopting the funding rate architecture. Today, the perpetual swap is a cornerstone of the cryptocurrency derivatives market, with an estimated annual turnover of $40-50 trillion. The fact that traditional finance regulators are now taking notice, with the CFTC considering the inclusion of perpetual swaps under its framework, is a testament to the product's enduring impact.
For Delo, the recognition of the perpetual swap's value is a culmination of a journey that began with a simple question on a hillside in Hong Kong.