How a Hong Kong Hike Revolutionized Crypto Trading

In 2015, on a hike in Hong Kong, the concept of a perpetual swap, also known as a perpetual future, was conceived. Ben Delo, BitMEX co-founder and mathematician, was discussing a problem with a friend, Bavik, a derivatives trader. BitMEX had been experimenting with various futures contracts, but customers kept complaining about positions closing unexpectedly. They wanted a product that resembled spot trading but offered the leverage of a derivatives exchange. Delo asked, 'What if a future never expired?' Bavik replied that it would be worth infinity from a mathematical perspective, as the value of a futures contract is partly derived from the time remaining until expiry and the cost of carrying the position. However, Bavik suggested charging traders the bitcoin overnight rate to solve the issue. Delo built this concept, inventing one of the most significant financial products of the 21st century. Initially, BitMEX targeted institutional hedgers, but it was retail traders who dominated the platform. 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 that kept the contract price aligned with the spot price of bitcoin. The funding rate was initially derived from third-party lending markets but was later adjusted to a dynamic approach, looking inward at how the swap was trading. This solution, which has been adopted by major derivatives exchanges, created 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 has been recognized, with competitors copying the concept and traditional finance regulators taking notice. Delo believes that once traditional finance sees the benefits of perpetual swaps, it will be impressive.