In 2015, Ben Delo, co-founder of BitMEX, was on a hike in Hong Kong with his friend Bavik, a derivatives trader, discussing a problem that had been bothering him for months. 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 replied that mathematically, it would be worth infinity. However, he suggested charging traders the bitcoin overnight rate to solve the issue. Delo built the product, inventing one of the most significant financial products of the 21st century. The perpetual swap was launched in May 2016, with a daily funding rate that kept the price anchored to the spot price.
Initially, the funding rate was derived from third-party lending markets, but it was later adjusted to a dynamic rate based on the swap's trading activity. This innovation led to BitMEX becoming the most liquid bitcoin market, with the perpetual swap at its core. The product's success has been so significant that every major derivatives exchange now uses a similar funding rate mechanism.
The perpetual swap has also attracted the attention of traditional finance regulators, with the CFTC reportedly making room for it under its framework.