How a Hong Kong Hike Revolutionized Crypto Trading Forever

In 2015, on a hiking trail in Hong Kong, the concept of the perpetual swap, also known as a perpetual future or 'perp,' was conceived. Ben Delo, BitMEX co-founder and mathematician, was discussing a problem with a friend, Bavik, a derivatives trader. BitMEX had experimented with various futures contracts, but customers were unhappy with positions closing unexpectedly. They wanted a product that combined the benefits of spot trading with the leverage of derivatives. Delo asked, 'What if a future never expired?' Bavik replied that mathematically, it would be worth infinity. However, he suggested charging traders the bitcoin overnight rate to solve the issue. Delo built this concept, inventing one of the most significant financial products of the 21st century. Initially, BitMEX targeted institutional hedgers, but retail traders flocked to the platform, seeking high leverage and speculation. By offering 100x leverage and a real-time margining system, BitMEX met this demand. The perpetual swap, launched in May 2016, was a futures contract with no expiry date, anchored to the spot price through a daily funding rate. The mechanism worked until bitcoin's rise in 2016 and 2017, when demand for long exposure overwhelmed the funding mechanism. Delo dynamically adjusted the funding rate calculation, replacing the fixed reference point with a dynamic one that looked inward at the swap's trading activity. This solution, now used by major derivatives exchanges worldwide, created a dynamic equilibrium. By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its center. Competitors noticed, and the product has become a staple in crypto, 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, and speculation about the CME listing them on equities. For Delo, this is the final validation of a concept that started as a question on a hillside above Hong Kong.