In 2015, a conversation between Ben Delo, BitMEX co-founder, and his friend Bavik, a derivatives trader, on a Hong Kong hiking trail, led to the creation of the perpetual swap, also known as a perpetual future. Delo was struggling to find a solution to the issues with traditional futures contracts, which were not meeting the needs of BitMEX customers. The customers wanted a product that combined the benefits of spot trading with the leverage of derivatives, but without the frustration of positions closing unexpectedly. Delo's question, "what if a future never expired?" sparked an idea that would change the face of crypto trading.
Bavik's response, "mathematically, it would be worth infinity," highlighted the technical challenges, but also led to a potential solution: charging traders an overnight rate, similar to the LIBOR in traditional finance. However, the bitcoin overnight rate did not exist at the time, so Delo decided to create it.
The perpetual swap was launched in May 2016, with a daily funding rate that balanced the price of the swap with the spot price of bitcoin. The early funding rate was derived from third-party lending markets, but it soon became clear that a more dynamic approach was needed.
Delo developed a new funding rate mechanism that looked inward at the swap's trading activity, rather than relying on external markets. This innovative approach allowed the swap to maintain a stable price, even in times of high demand. The perpetual swap quickly gained popularity, and by 2017, BitMEX had become the most liquid bitcoin market in the world. The exchange's success attracted the attention of competitors, who began to offer their own versions of the perpetual swap.
Today, the perpetual swap is a cornerstone of the crypto derivatives market, with a turnover of over $40 trillion per year. Delo's decision not to patent the perpetual swap allowed the product to spread rapidly, and it has now become a standard component of many crypto exchanges. As traditional finance regulators begin to take notice of the perpetual swap, it is likely that this innovative financial product will continue to shape the future of trading.