How a Chance Encounter on a Hong Kong Hike Revolutionized Crypto Trading

In 2015, a hike in Hong Kong's countryside led to the creation of the perpetual swap, also known as a perpetual future or 'perp.' Ben Delo, BitMEX co-founder and mathematician, was discussing a problem with 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 derivatives. Delo asked, 'What if a future never expired?' Bavik replied that it would be mathematically worth infinity. However, he suggested charging traders the bitcoin overnight rate to solve the issue. Delo built this concept, inventing a groundbreaking financial product. Initially, BitMEX targeted institutional hedgers, but it attracted retail traders seeking high leverage instead. By Halloween 2015, the exchange offered 100x leverage, thanks to Delo's real-time margining system. The perpetual swap launched in May 2016, with a daily funding rate to keep the contract price aligned with the spot price. The early funding rate was derived from external lending markets but was later adjusted to a dynamic system that looked inward at the swap's trading activity. This solution allowed market makers to anchor the contract price 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 its adoption by other exchanges, and it now facilitates $40-50 trillion in turnover annually. BitMEX chose not to patent the perpetual swap, focusing on building instead. The product is now attracting traditional finance regulators' attention, with the potential for listing on equities.