The Genesis of a Revolutionary Trading Concept: How a Hong Kong Hike Paved the Way for Crypto's Future

The concept of the perpetual swap, also known as a perpetual future, was conceived in 2015 on a hiking trail in Hong Kong. Ben Delo, BitMEX co-founder and 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 had succeeded in meeting customer demands. Customers were frustrated with positions closing unexpectedly, seeking a product that combined the benefits of spot trading with the leverage of derivatives. Delo's friend proposed a solution: a future with no expiration date, which would theoretically be worth infinity. However, this raised a new challenge: how to charge traders for holding positions. The answer lay in charging the bitcoin overnight rate, similar to LIBOR in traditional finance. Delo built this concept into a product, inventing one of the most influential financial products of the 21st century. The perpetual swap was launched in May 2016, with a core mechanic that involved a futures contract with no expiry date, anchored to the spot price through a daily funding rate. Initially, the funding rate was derived from third-party lending markets, but this approach was later replaced with a dynamic method that looked inward at the swap's trading activity. The solution was elegant, measuring the gap between the swap and spot prices over an eight-hour window and back-calculating the annualized rate from it. This funding rate mechanism has since been adopted by every major derivatives exchange. 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, which consolidated 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 considered one of the most successful products in the history of capitalism, with an estimated $40-50 trillion in annual turnover. BitMEX chose not to patent the concept, instead focusing on building and allowing the market to validate its value. Now, traditional finance regulators are taking notice, with the CFTC reportedly making room for perpetual swaps and speculation that the CME could list them on equities.