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

In 2015, a hike in Hong Kong's countryside gave birth to the concept of the perpetual swap, also known as a perpetual future or 'perp.' Ben Delo, BitMEX's co-founder and a mathematician, was on a hike with Bavik, a derivatives trader, grappling with a problem that had plagued him for months. BitMEX had experimented with various futures contracts - quarterly, monthly, weekly, 48-hour, and even 24-hour - but none worked as intended. Customers complained about positions closing unexpectedly, seeking a product that mirrored spot trading but offered the leverage of a derivatives exchange. Delo posed a question: 'What if a future never expired?' Bavik's response was immediate: 'Mathematically, it would be worth infinity.' Although theoretically correct, the solution lay in charging traders the bitcoin overnight rate, akin to LIBOR in traditional finance. However, Delo realized that such a rate did not exist, prompting him to create it. This innovation would become one of the most significant financial products of the 21st century. The perpetual swap's launch in May 2016 was unassuming, with a straightforward mechanism: 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 traded above or below spot, with BitMEX taking no cut. The early funding rate was derived from third-party lending markets but eventually needed dynamic adjustment to reflect the swap's trading conditions. The solution involved measuring the gap between the swap and spot prices over an eight-hour window, treating it as an implied basis, and back-calculating the annualized rate. This funding rate mechanism is now used by every major derivatives exchange worldwide. By 2017, BitMEX had become the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its core. The concentration of liquidity was a direct result of the swap's design, consolidating market maker capital into a single instrument. Competitors took notice, with some copying the concept and others developing their own versions. Today, the perpetual swap is a cornerstone of crypto trading, with an estimated $40-50 trillion in annual turnover. BitMEX chose not to patent the perpetual swap, focusing instead on building and innovating. Now, traditional finance regulators are taking notice, with the CFTC reportedly making room for perpetual swaps and speculation about the CME listing them on equities. For Delo, this is the ultimate validation of a concept born from a question on a Hong Kong hillside.