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, BitMEX's co-founder and a mathematician, was discussing a persistent problem with a friend named Bavik, a derivatives trader. BitMEX had experimented with various futures contracts, including quarterly, monthly, weekly, and even 24-hour contracts, but none of them met the needs of their customers.
The customers 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 make it viable. Delo decided to build this concept, which ultimately led to the invention of one of the most significant financial products of the 21st century.
To understand the impact of the perpetual swap, it's essential to consider what BitMEX was trying to achieve before it became the most liquid bitcoin market globally. When Delo and Arthur Hayes founded the exchange in 2014, they focused on institutional hedgers, not retail traders. Hayes had experience working at Deutsche Bank, while Delo had built high-frequency trading systems at JP Morgan. Their goal was to provide professional infrastructure for bitcoin miners and payment companies to hedge their exposure.
However, instead of institutions, the exchange attracted sophisticated retail traders seeking speculation with high leverage. By Halloween 2015, BitMEX was offering 100x leverage, thanks to a real-time margining system developed 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. This concept was unfamiliar to many in the crypto space in 2015. BitMEX continued to shorten the expiry of its listed futures contracts, but customers remained confused. The solution came from Delo's conversation on the hiking trail, which provided the framework for building a leveraged product that never expired.
The perpetual swap launched in May 2016 with a core mechanic that was straightforward: 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. Initially, the funding rate was derived from third-party lending markets, but it eventually became dynamic, looking inward at how the swap was trading rather than outward at external markets.
This approach allowed market makers to understand how the funding rate was calculated and when it would be charged, creating a dynamic equilibrium. The perpetual swap became a game-changer for BitMEX, making it the most liquid bitcoin market by 2017.
The exchange processed $3-4 billion daily, with the perpetual swap at its core. Price discovery for bitcoin was happening on the BitMEX order book, rather than on other exchanges like Coinbase or Bitstamp. The concentration of liquidity was a direct result of the swap's design, which consolidated market maker capital into one instrument.
Competitors took notice, and eventually, every major exchange in crypto offered its own perpetual swap, built on the funding rate architecture that Delo had developed. The fact that other exchanges have copied the swap is a testament to its financial innovation. Delo estimates that the perpetual swap now generates $40-50 trillion in turnover annually, making it one of the most successful products in the history of capitalism. Looking ahead, traditional finance regulators are starting to take notice of the perpetual swap.
The CFTC is reportedly making room for perpetual swaps under its framework, and there is speculation that the CME could eventually list them on equities. For Delo, this prospect is the final validation of a concept that started as a question on a hillside above Hong Kong.