The concept of the perpetual swap, also known as a perpetual future or 'perp,' was conceived on a hiking trail in Hong Kong in 2015. Ben Delo, BitMEX co-founder and mathematician, was discussing a problem with his friend Bavik, a derivatives trader. BitMEX had experimented with various futures contracts, but customers were unhappy with positions closing unexpectedly. They sought a product that mimicked spot trading but offered the leverage of a derivatives exchange.
Delo asked, 'What if a future never expired?' Bavik replied that it would be mathematically worth infinity, as the carrying cost would compound indefinitely. However, Bavik suggested charging traders the bitcoin overnight rate, similar to LIBOR in traditional finance.
Delo built this concept, inventing one of the most influential financial products of the 21st century. Initially, BitMEX targeted institutional hedgers, but retail traders dominated the platform. By Halloween 2015, the exchange offered 100x leverage, thanks to Delo's real-time margining system.
The perpetual swap launched in May 2016, with a daily funding rate that balanced long and short positions. The early funding rate was derived from external lending markets but was later adjusted to a dynamic, inward-looking approach. This solution, which measured the swap's premium to spot over an eight-hour window, has become the standard for major derivatives exchanges. By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its core.
The product's success has led to its adoption by other exchanges, with an estimated $40-50 trillion in annual turnover. BitMEX chose not to patent the perpetual swap, focusing on development instead. Now, traditional finance regulators are taking notice, with potential implications for the broader financial industry.