In 2015, a hike in Hong Kong's mountains led to the conception of the perpetual swap, a groundbreaking financial product that changed the face of cryptocurrency trading. Ben Delo, BitMEX co-founder, was discussing a persistent problem with a friend, Bavik, a derivatives trader. BitMEX had tried 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 this concept, inventing one of the most significant financial products of the 21st century. Initially, BitMEX targeted institutional hedgers, but it was retail traders who flocked to the platform, seeking high-leverage speculation. By Halloween 2015, BitMEX offered 100x leverage, thanks to Delo's real-time margining system. The issue with traditional futures was the basis premium, which confused many in the crypto space.
BitMEX's solution was the perpetual swap, launched in May 2016, which used a daily funding rate to anchor the contract price to the spot price. The funding rate was initially derived from external lending markets but was later adjusted to be dynamic, looking inward at the swap's trading activity. This mechanism has become the standard for major derivatives exchanges worldwide. 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 led to competitors copying it, and now every major exchange offers its own perpetual swap. Delo believes the product's impact will be further validated as traditional finance regulators take notice, with the CFTC reportedly making room for perpetual swaps and speculation about the CME listing them on equities.