In 2015, Ben Delo, co-founder of BitMEX, was on a hike in Hong Kong with a friend, Bavik, a derivatives trader. They were discussing the challenges faced by BitMEX, which had been experimenting with various types of futures contracts. The goal was to create a product that would give customers the leverage they desired without the frustration of frequent expirations. Delo asked, 'What if a future never expired?' Bavik's response was that it would be mathematically worth infinity.
However, he also suggested a solution: charge traders the bitcoin overnight rate. This conversation laid the foundation for the perpetual swap, a product that would become a cornerstone of crypto trading. The perpetual swap was launched in May 2016, and its impact was significant.
It allowed for a futures contract with no expiry date, anchored to the spot price through a daily funding rate. The rate was initially derived from third-party lending markets but was later adjusted to be dynamic, looking inward at how the swap was trading. This mechanism allowed for a more stable and efficient market.
The success of the perpetual swap was rapid, with BitMEX becoming the most liquid bitcoin market in the world by 2017. The product's design concentrated liquidity, making it a more attractive option for traders.
Competitors took notice, and soon every major exchange in crypto offered its own perpetual swap. The product's impact extends beyond the crypto space, with traditional finance regulators and institutions taking notice. 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.
Delo believes that once traditional finance sees the benefits of this financial product, it will be impressive. The perpetual swap's story is one of innovation and disruption, and its impact will be felt for years to come.