How a Hong Kong Hike Led to a Revolutionary Change in Crypto Trading

The concept of the perpetual swap, also known as a perpetual future or 'perp,' was born in 2015 on a hiking trail in Hong Kong. Ben Delo, BitMEX co-founder and mathematician, was discussing a problem with his friend Bavik, a derivatives trader. BitMEX had tried various futures contracts, but customers complained about positions closing without warning. 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 it would theoretically be worth infinity due to the compounding carrying cost. However, he suggested charging traders the bitcoin overnight rate to solve this issue. Delo built this concept into the perpetual swap, which became one of the most significant financial products of the 21st century. The swap was launched in May 2016 with a daily funding rate that kept it anchored to the spot price. Initially, the funding rate was derived from external lending markets but was later adjusted dynamically based on the swap's trading activity. This mechanism allowed market makers to short the swap and anchor it 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 success led to it being adopted by other exchanges, with Delo estimating it now handles $40-50 trillion in turnover annually, making it one of the most successful financial products in history.