How a Hong Kong Hike Revolutionized Crypto Trading Forever

In 2015, a hike in Hong Kong's countryside would change the trajectory of cryptocurrency trading. It was there that Ben Delo, BitMEX co-founder and mathematician, brainstormed the concept of a perpetual swap with a friend, Bavik, a derivatives trader. The idea was born out of frustration; despite various attempts with quarterly, monthly, weekly, and even 24-hour futures contracts, customers continued to express dissatisfaction with positions closing unexpectedly. Delo's epiphany - 'what if a future never expired?' - was met with Bavik's response that it would theoretically be worth infinity due to the compounding carrying cost. However, Bavik suggested charging traders the bitcoin overnight rate to balance this. The challenge was that such a rate didn't exist, prompting Delo to create it. This innovation would become one of the most significant financial products of the 21st century. Initially, BitMEX aimed to cater to institutional hedgers, offering professional infrastructure for bitcoin miners and payment companies to manage their exposure. Yet, it was retail traders seeking high leverage and size for speculation who predominantly used the platform. By Halloween 2015, BitMEX was offering 100x leverage, thanks to Delo's real-time margining system. The issue of basis - the premium at which a futures contract trades above the underlying asset's spot price - confused many in crypto at the time. Customers complained about bitcoin's high price on the exchange, not understanding that they could short it. The solution came in the form of a perpetual swap, launched in May 2016, which was a futures contract with no expiry date, anchored to the spot price through a daily funding rate. Initially, the funding rate was derived from external lending markets but later became dynamic, measuring the swap's premium to the spot price over an eight-hour window and back-calculating the annualized rate. 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, with the perpetual swap at its core, processing $3-4 billion daily. The concentration of liquidity was a direct result of the swap's design, consolidating market maker capital into one instrument. Competitors noticed, and soon every major crypto exchange offered its own perpetual swap, built on Delo's funding rate architecture. Today, the product is recognized as a significant financial innovation, with turnover reaching $40-50 trillion annually. Despite considering patenting the perpetual swap, BitMEX chose to focus on development, and now, traditional finance regulators are taking notice, with the CFTC making room for perpetual swaps and speculation about the CME listing them on equities. For Delo, this is the ultimate validation of an idea born from listening to customer complaints about disappearing positions, an idea that started on a hillside in Hong Kong.