How a Hong Kong Hike Revolutionized Crypto Trading Forever

In 2015, on a hiking trail in Hong Kong, the concept of a perpetual swap, also known as a perpetual future, was conceived. Ben Delo, a mathematician and co-founder of BitMEX, was walking with a friend named Bavik, a derivatives trader, grappling with a problem that had been bothering him for months. BitMEX had been experimenting with various types of futures contracts, including quarterly, monthly, weekly, 48-hour, and 24-hour contracts, but nothing seemed to work. Customers kept complaining that their positions were closing without warning, and they wanted a product that resembled spot trading but offered the leverage of a derivatives exchange. Delo asked, 'What if a future never expired?' Bavik's response was immediate: 'Mathematically, it would be worth infinity.' Although technically correct, Bavik proposed a solution: charge traders the bitcoin overnight rate, similar to LIBOR in traditional finance. However, Delo was unsure what that rate was, so he decided to create it. This decision led to the invention of one of the most significant financial products of the 21st century. To understand the importance of the perpetual swap, it's essential to consider what BitMEX was trying to achieve before it became the most liquid bitcoin market in the world. When Delo and Arthur Hayes founded the exchange in 2014, they focused on institutional hedgers, not retail traders. Hayes had worked at Deutsche Bank, while Delo spent years building high-frequency trading systems at JP Morgan. Their goal was to provide a professional infrastructure for bitcoin miners and payment companies to hedge their exposure. The institutions never came, but instead, sophisticated retail traders arrived, seeking to speculate with high leverage. BitMEX listened and began offering 100x leverage by Halloween 2015, thanks to a real-time margining system built by Delo. The issue with futures contracts, even short-dated ones, was the basis, the premium at which a futures contract trades above the spot price of the underlying asset. In traditional finance, this is well understood, but in crypto, in 2015, it confused almost everyone. BitMEX kept shortening the expiry of its listed futures contracts, but customers were still unhappy. Delo's conversation on the hiking trail gave him the framework to build a product that customers wanted: a leveraged product that never expired. The perpetual swap launched in May 2016 with a straightforward core mechanic: a futures contract with no expiry date, anchored to the spot price through a daily funding rate. Longs paid shorts, or vice versa, depending on whether the swap was trading above or below spot. The early funding rate was derived from third-party lending markets, primarily Bitfinex. However, as Bitcoin rose in 2016 and 2017, demand for long exposure on BitMEX overwhelmed the funding mechanism. The swap started trading at a persistent premium to spot, causing the contract price to drift away from the actual price of bitcoin. Delo had to dynamically adjust the funding rate calculation. The original funding rate was replaced with a dynamic one, looking inward at how the swap was trading rather than outward at what Bitfinex was charging to borrow dollars. The solution was elegant: measure the gap between the swap and spot over an eight-hour window, treat it as an implied basis, and back-calculate the annualized rate from it. This rate would then be charged at the end of the next eight-hour window. By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion a day, with the perpetual swap at its center. Price discovery for bitcoin was happening on the BitMEX order book, not on Coinbase or Bitstamp. The concentration of liquidity was a product of the swap's design, collapsing multiple contracts into one instrument. Competitors noticed, and every major exchange in crypto now offers its own perpetual swap, built on the funding rate architecture that Delo created. BitMEX chose not to patent the perpetual swap, and now, a decade later, the product is attracting the attention of traditional finance regulators. The CFTC is reportedly making room for perpetual swaps, and there is speculation that the CME could eventually list them on equities. For Delo, this prospect is the final validation of something that started as a question on a hillside above Hong Kong.