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

In 2015, a hike in Hong Kong's countryside became the unlikely catalyst for a groundbreaking concept in crypto trading. Ben Delo, BitMEX co-founder and mathematician, was pondering a persistent issue with his exchange's futures contracts. Customers were frustrated with positions closing unexpectedly, seeking a product that mimicked spot trading but offered the leverage of derivatives. The solution emerged during a conversation with Bavik, a derivatives trader, when Delo asked, "What if a future never expired?" Bavik's response, "Mathematically, it would be worth infinity," sparked an idea. By charging traders the bitcoin overnight rate, Delo could create a perpetual swap, a concept that would revolutionize crypto trading. The perpetual swap, launched in 2016, was a futures contract with no expiry date, anchored to the spot price through a daily funding rate. Longs paid shorts, or vice versa, depending on whether the swap was trading above or below spot, with BitMEX taking no cut. The early funding rate was derived from third-party lending markets but was later adjusted to a dynamic approach, looking inward at the swap's trading activity. This mechanism allowed market makers to anchor the swap's price back to the spot price, creating a dynamic equilibrium. The perpetual swap's success was unprecedented, with BitMEX becoming the most liquid bitcoin market by 2017. The concentration of liquidity was a direct result of the swap's design, which consolidated market maker capital into a single instrument. Competitors took notice, with many exchanges copying the concept. Today, the perpetual swap is a cornerstone of crypto trading, with an estimated $40-50 trillion in annual turnover. Delo's innovative concept has attracted the attention of traditional finance regulators, with the potential for perpetual swaps to be listed on equities. The story of the perpetual swap serves as a testament to the power of innovation in finance, born from a simple question on a Hong Kong hillside.