How a Chance Encounter on a Hong Kong Hike Revolutionized Crypto Trading

In 2015, a conversation between Ben Delo, co-founder of BitMEX, and his friend Bavik, a derivatives trader, on a hiking trail in Hong Kong, led to the creation of the perpetual swap, also known as a perpetual future or 'perp.' This innovation was born out of frustration with traditional futures contracts, which would expire and close positions without warning, causing customer complaints. Delo and his team had tried various contract durations, from quarterly to 24-hour futures, but none met the customers' needs for a product that mimicked spot trading with the leverage of derivatives. The breakthrough came when Delo asked, 'What if a future never expired?' Bavik's response was that it would theoretically be worth infinity due to the compounding carrying cost. However, he suggested charging traders the bitcoin overnight rate to solve the issue. Since this rate did not exist at the time, Delo created it. This led to the invention of one of the most significant financial products of the 21st century. Initially, BitMEX was designed for institutional hedgers, offering a professional infrastructure for bitcoin miners and payment companies to manage their exposure. However, the exchange quickly shifted its focus to meet the demands of sophisticated retail traders seeking high leverage and speculation opportunities. By offering 100x leverage and a real-time margining system, BitMEX gained popularity. 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. This mechanism allowed longs and shorts to be balanced without BitMEX taking a cut. The early funding rate was derived from external lending markets but later adjusted dynamically based on the swap's trading activity. This dynamic equilibrium allowed market makers to anchor the swap's price back to the spot price, creating a stable and liquid market. The perpetual swap's success was evident by 2017, with BitMEX becoming the most liquid bitcoin market, processing $3-4 billion daily. The concentration of liquidity was a direct result of the swap's design, which consolidated market maker capital into a single instrument. Competitors took notice, with many copying the concept. Today, every major exchange in crypto offers its own perpetual swap, built on the funding rate architecture Delo developed. The product's impact is undeniable, with an estimated $40-50 trillion in annual turnover, making it one of the most successful financial innovations in history. BitMEX chose not to patent the perpetual swap, focusing instead on building and letting the market validate its value. Now, traditional finance regulators are taking notice, with the potential for perpetual swaps to be integrated into mainstream financial frameworks.