The Birth of a Revolutionary Trading Concept: How a Hong Kong Hike Changed Crypto 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's co-founder and a mathematician, was on a hike with Bavik, a derivatives trader, grappling with a problem that had been plaguing him for months. BitMEX had experimented with various futures contracts, but customers consistently complained about their positions being closed without warning, seeking a product that mimicked spot trading but offered the leverage of a derivatives exchange. Delo posed a question: 'What if a future never expired?' Bavik's response was immediate: 'Mathematically, it would be worth infinity.' Although technically correct, as a futures contract's value is derived from its time to expiry and carrying costs, Bavik proposed a solution: charge traders the bitcoin overnight rate. However, Delo was unsure what that rate was, prompting him to create it. This innovation would become one of the most significant financial products of the 21st century. To understand the perpetual swap's impact, it's essential to grasp what BitMEX aimed to be before becoming the world's most liquid bitcoin market. Founded in 2014 by Delo and Arthur Hayes, the exchange targeted institutional hedgers, but instead, it attracted sophisticated retail traders seeking high leverage and speculation. By Halloween 2015, BitMEX offered 100x leverage, thanks to Delo's real-time margining system. The issue with futures contracts was the basis premium, which confused many in the crypto space. Customers would ask why bitcoin was more expensive on BitMEX, and the exchange would explain that they could short it, which was a foreign concept to many. BitMEX continued to shorten the expiry of its futures contracts, but customers wanted a product that never expired. The perpetual swap launched in May 2016, with a daily funding rate that balanced longs and shorts. Initially, the funding rate was derived from third-party lending markets, but as bitcoin's price rose, the mechanism struggled to keep the contract price aligned with the spot price. Delo dynamically adjusted the funding rate calculation to look inward at the swap's trading activity, rather than relying on external lending markets. This solution allowed market makers to anchor the contract price back to the spot price, creating a dynamic equilibrium. By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its core. The product's design concentrated liquidity, making it a more liquid market with tighter spreads. Competitors took notice, and every major exchange in crypto now offers its own perpetual swap, built on Delo's funding rate architecture. The fact that other exchanges have copied the swap validates its financial innovation, with an estimated $40-50 trillion in annual turnover. BitMEX chose not to patent the perpetual swap, focusing on building instead. Now, traditional finance regulators are taking notice, and the product may eventually be listed on equities. For Delo, this is the ultimate validation of a concept born on a hillside in Hong Kong, driven by the desire to solve a problem that had been plaguing his customers.