How a Hong Kong Hike Revolutionized Crypto Trading Forever

In 2015, on a hiking trail in Hong Kong, the concept of the perpetual swap, also known as a perpetual future or 'perp,' was conceived. Ben Delo, BitMEX co-founder and mathematician, was discussing a persistent issue with a friend named Bavik, a derivatives trader. BitMEX had experimented with various futures contracts, but customers complained about positions closing without warning, seeking a product that mimicked spot trading but offered leverage. Delo asked, 'What if a future never expired?' Bavik replied that mathematically, it would be worth infinity due to the compounding carrying cost. However, he suggested charging traders the bitcoin overnight rate, similar to LIBOR in traditional finance. Delo built this concept, inventing a groundbreaking financial product. Initially, BitMEX targeted institutional hedgers, but it was retail traders who dominated the platform, seeking high-leverage speculation. By Halloween 2015, BitMEX offered 100x leverage, thanks to Delo's real-time margining system. The perpetual swap launched in May 2016, with a daily funding rate balancing mechanism. Longs paid shorts, or vice versa, depending on whether the swap traded above or below spot. The funding rate was initially derived from third-party lending markets but was later adjusted dynamically based on the swap's trading. This solution, looking inward at the swap's trading rather than external markets, became the standard for major derivatives exchanges. By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its core. Competitors noticed, and every major exchange now offers a perpetual swap, with Delo's funding rate architecture. The product's success, with $40-50 trillion in annual turnover, has attracted traditional finance regulators' attention, with the CFTC and CME considering its integration.