The Birth of a Revolutionary Trading Concept: How a Hong Kong Hike Changed Crypto Forever

The concept of the perpetual swap, also known as a perpetual future or 'perp,' was conceived in 2015 on a hiking trail in Hong Kong. Ben Delo, BitMEX co-founder and mathematician, was discussing a persistent problem with a friend, Bavik, a derivatives trader. BitMEX had experimented with various futures contracts, but customers complained about positions closing unexpectedly. They sought a product that resembled spot trading but offered the leverage of a derivatives exchange. Delo asked, 'What if a future never expired?' Bavik replied that it would be mathematically infinite. He suggested charging traders the bitcoin overnight rate, similar to LIBOR in traditional finance. However, Delo realized this rate didn't exist, so he created it. This innovation led to one of the most significant financial products of the 21st century. Initially, BitMEX targeted institutional hedgers, but it attracted sophisticated retail traders instead. They demanded high leverage, which BitMEX provided by introducing 100x leverage and a real-time margining system. The perpetual swap launched in May 2016, with a daily funding rate that balanced long and short positions. The rate was initially derived from external lending markets but was later adjusted to a dynamic, inward-looking mechanism. This solution allowed market makers to anchor the swap price to the spot price, creating a dynamic equilibrium. The funding rate mechanism is now used by every major derivatives exchange. By 2017, BitMEX had become the most liquid bitcoin market, processing $3-4 billion daily. The perpetual swap's design consolidated liquidity, resulting in a more liquid market with tighter spreads. Competitors noticed, and the product was eventually copied by other exchanges. Delo believes the perpetual swap's success, with an estimated $40-50 trillion in annual turnover, is a testament to its financial innovation. BitMEX chose not to patent the concept, focusing on building instead. Now, traditional finance regulators are taking notice, and the product may eventually be listed on equities.