The Genesis of a Crypto Trading Revolution: How a Hong Kong Hike Changed Everything

The concept of the perpetual swap, also known as a perpetual future or 'perp,' was conceived on a hiking trail in Hong Kong in 2015. Ben Delo, BitMEX's co-founder and a mathematician, was discussing a persistent issue with a friend, Bavik, a derivatives trader. BitMEX had experimented with various futures contracts, including quarterly, monthly, weekly, 48-hour, and 24-hour contracts, but none of them met customer demands. Customers wanted a product that mimicked spot trading but offered the leverage of a derivatives exchange. Delo asked, 'What if a future never expired?' Bavik's response was that it would theoretically be worth infinity due to the compounding carrying cost. However, he suggested charging traders the bitcoin overnight rate to solve the problem. Delo built this concept into a product, inventing one of the most influential financial products of the 21st century. Initially, BitMEX targeted institutional hedgers, but it ended up catering to sophisticated retail traders seeking high leverage for speculation. By offering 100x leverage and a real-time margining system, BitMEX listened to its customers' needs. The perpetual swap, launched in May 2016, featured a daily funding rate that kept the contract price aligned with the spot price. The funding rate mechanism, which has been adopted by major derivatives exchanges worldwide, was initially derived from external lending markets but was later dynamically adjusted based on the swap's trading activity. This innovation led to BitMEX becoming the most liquid bitcoin market, with the perpetual swap at its core. The product's success has been so profound that it now attracts the attention of traditional finance regulators, with potential implications for its integration into mainstream financial markets.