How a Hong Kong Hike Paved the Way for a Revolutionary Crypto Trading Product

In 2015, Ben Delo, co-founder of BitMEX, was on a hike in Hong Kong with a friend, Bavik, a derivatives trader. Delo was struggling to find a solution to a problem that had been plaguing him for months. BitMEX had tried various approaches, including quarterly, monthly, weekly, and 48-hour futures contracts, but nothing seemed to work. Customers were complaining that their positions were closing without warning, and they wanted a product that could offer them the leverage they needed without the hassle of expiring contracts. Delo asked Bavik, 'What if a future never expired?' Bavik's response was that it would be worth infinity, but he also suggested a possible solution: charge traders the bitcoin overnight rate. However, Delo realized that this rate did not exist, so he decided to build it. This marked the beginning of the perpetual swap, a financial product that would go on to revolutionize the crypto trading industry. The perpetual swap was launched in May 2016, and it quickly gained popularity. The core mechanic was simple: 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. The funding rate was initially derived from third-party lending markets, but it was later adjusted to a dynamic rate that looked inward at how the swap was trading on BitMEX. This approach allowed the exchange to maintain a balance between longs and shorts, keeping the contract price aligned with the actual price of bitcoin. The perpetual swap's success was rapid, with BitMEX becoming the most liquid bitcoin market in the world by 2017. The exchange was processing $3-4 billion a day, and the perpetual swap was at the center of it all. The product's design allowed for a concentration of liquidity, making it more attractive to traders. Competitors took notice, and soon every major exchange in crypto was offering its own perpetual swap, each built on the funding rate architecture that Delo had created. Today, the perpetual swap is considered one of the most successful financial products in history, with a turnover of $40-50 trillion dollars a year. Delo's innovation has attracted the attention of traditional finance regulators, with the CFTC reportedly making room for perpetual swaps under its framework. The CME may also list them on equities in the future. For Delo, this is the final validation of a product that started as a question on a hillside above Hong Kong.