In 2015, a chance conversation on a Hong Kong hiking trail between Ben Delo, BitMEX co-founder, and his friend Bavik, a derivatives trader, laid the groundwork for a groundbreaking financial product. Delo was struggling to find a solution to the issues plaguing BitMEX's futures contracts, which were expiring too quickly and causing customer complaints. The question 'what if a future never expired?' sparked an idea that would change the face of crypto trading. Bavik's response, 'mathematically, it would be worth infinity,' set Delo on a path to create a perpetual swap, a futures contract with no expiration date.
The challenge was to design a system that would keep the contract's value in check, and the solution lay in charging traders an overnight rate, similar to the LIBOR in traditional finance. However, since the bitcoin overnight rate did not exist at the time, Delo decided to build it.
This innovation would become one of the most significant financial products of the 21st century. The story of BitMEX's rise to becoming the most liquid bitcoin market in the world is closely tied to the perpetual swap's success.
Initially, the exchange targeted institutional hedgers, but it was retail traders who ultimately drove its growth, seeking high-leverage speculative opportunities. By offering 100x leverage and a real-time margining system, BitMEX catered to these traders' needs.
The perpetual swap, launched in 2016, revolutionized the market with its dynamic funding rate mechanism, which ensured the contract's price remained anchored to the spot price. This innovation has since been adopted by every major derivatives exchange, with the product now handling over $40 trillion in turnover annually.
The impact of the perpetual swap extends beyond the crypto world, with traditional finance regulators taking notice and considering its integration into their frameworks. As Delo reflects on the journey, he believes that once traditional finance fully grasps the benefits of this financial product, its potential will be truly impressive.