How a Single Hike in Hong Kong Revolutionized Crypto Trading Forever

In 2015, a hike in Hong Kong's trails led to the birth of a groundbreaking concept - the perpetual swap, also known as a perpetual future or 'perp'. Ben Delo, co-founder of BitMEX and a mathematician, was on this hike with Bavik, a derivatives trader, grappling with the challenges of creating a futures contract that met the needs of their customers. The goal was to design a product that resembled spot trading but offered the leverage of derivatives. Delo's question to Bavik - 'What if a future never expired?' - sparked a pivotal moment. Bavik's response, 'Mathematically, it would be worth infinity,' highlighted the theoretical value but also the practical issue of compounding costs. The solution involved charging traders an overnight rate, akin to LIBOR in traditional finance, but with a twist - using the bitcoin overnight rate, which did not exist at the time. Delo decided to build it, thereby inventing one of the most influential financial products of the 21st century. The journey of BitMEX, from its founding in 2014 by Delo and Arthur Hayes, was initially aimed at institutional hedgers. However, the exchange soon found itself catering to sophisticated retail traders seeking high leverage and speculation opportunities. By Halloween 2015, BitMEX was offering 100x leverage, thanks to Delo's real-time margining system. 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. Initially derived from third-party lending markets, the funding rate mechanism was later dynamically adjusted to reflect conditions on BitMEX itself, ensuring the contract price remained aligned with the actual price of bitcoin. This innovation led to BitMEX becoming the most liquid bitcoin market, processing $3-4 billion daily by 2017. The concentration of liquidity was a direct result of the swap's design, collapsing multiple contracts into one instrument. Competitors took notice, and soon every major exchange in crypto offered its own perpetual swap, built on the funding rate architecture pioneered by Delo. Today, the perpetual swap is considered one of the most successful financial products in history, with turnover reaching $40-50 trillion annually. Despite the option to patent the perpetual swap, BitMEX chose not to, opting instead to focus on building and letting the market validate their innovation. Now, traditional finance regulators are taking notice, with the CFTC making room for perpetual swaps and speculation about the CME listing them on equities. For Delo, this is the ultimate validation of a concept born from a question on a Hong Kong hillside, a testament to the power of innovation in finance.