The concept of the perpetual swap, also known as a perpetual future, was born in 2015 on a hiking trail in Hong Kong. Ben Delo, BitMEX's co-founder and a mathematician, was discussing a problem with his friend Bavik, a derivatives trader. BitMEX had tried various futures contracts, but customers kept complaining about their positions closing unexpectedly.

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 into a product, inventing one of the most significant financial products of the 21st century. BitMEX was initially designed for institutional hedgers, but it attracted sophisticated retail traders instead.

They wanted to speculate with high leverage, and BitMEX adapted by offering 100x leverage and a real-time margining system. The issue with futures contracts was the basis premium, which confused many in the crypto space. The perpetual swap, launched in 2016, was a futures contract with no expiry date, anchored to the spot price through a daily funding rate. The funding rate was initially derived from third-party lending markets but was later adjusted dynamically based on 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 concentration of liquidity was a result of the swap's design, which consolidated market maker capital into one instrument. Competitors noticed, and every major exchange in crypto now offers its own perpetual swap.

Delo believes that the product's success is a testament to its financial innovation, with an estimated $40-50 trillion in annual turnover. The perpetual swap is starting to attract traditional finance regulators' attention, with the CFTC reportedly making room for it under its framework.

Delo sees this as the final validation of a product that started as a question on a hillside above Hong Kong.