How a Hong Kong Hike Revolutionized Crypto Trading Forever

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, a mathematician and co-founder of BitMEX, was discussing a problem with a friend, Bavik, a derivatives trader. BitMEX had been experimenting with various futures contracts, but customers kept complaining about positions closing without warning. 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 that it would be mathematically worth infinity. However, he suggested charging traders the bitcoin overnight rate to solve the issue. Delo built the product, inventing one of the most significant financial products of the 21st century. The perpetual swap launched in May 2016 with a core mechanic: a futures contract with no expiry date, anchored to the spot price through a daily funding rate. The early funding rate was derived from third-party lending markets, but it eventually had to be dynamically adjusted to respond to conditions on BitMEX. The solution was to look inward at how the swap was trading and calculate the funding rate based on the implied basis. This approach created a dynamic equilibrium, where market makers could anchor the swap back to the spot price. The perpetual swap became a huge success, with BitMEX processing $3-4 billion a day by 2017. The product's design concentrated liquidity, making it the most liquid bitcoin market on the planet. Competitors noticed, and every major exchange in crypto now offers its own perpetual swap. Delo believes that the product's success is a testament to its financial innovation, with an estimated $40-50 trillion in turnover annually. The perpetual swap is now attracting the attention of traditional finance regulators, with the potential for it to be listed on equities in the future.