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

The concept of the perpetual swap, also known as a perpetual future or 'perp,' was conceived in 2015 on a hiking trail in Hong Kong. Ben Delo, BitMEX co-founder and mathematician, was pondering a problem that had been plaguing him for months while walking with his 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 seemed to work. Customers consistently complained about their positions being closed without warning, seeking a product that resembled spot trading but offered the leverage of a derivatives exchange. Delo posed a question to Bavik: 'What if a future never expired?' Bavik's immediate response was that it would be mathematically worth infinity. Although technically correct, Bavik proposed a solution: charge traders the bitcoin overnight rate, similar to how LIBOR is used in traditional finance. However, Delo was unaware of such a rate, prompting him to create it. This innovation led to the development of one of the most significant financial products of the 21st century. The story of BitMEX's beginnings is rooted in its founders' backgrounds in institutional finance. Delo and Arthur Hayes, who worked at JP Morgan and Deutsche Bank, respectively, aimed to create a platform for institutional hedgers, such as bitcoin miners and payment companies. Instead, they attracted sophisticated retail traders seeking high leverage and speculation opportunities. By October 2015, BitMEX was offering 100x leverage, thanks to Delo's real-time margining system. The perpetual swap, launched in May 2016, was a game-changer. It introduced 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 was trading above or below spot, with BitMEX taking no cut. The early funding rate was derived from third-party lending markets but eventually became dynamic, looking inward at the swap's trading activity rather than external markets. This mechanism, now widely used by major derivatives exchanges, was a key factor in BitMEX's success. By 2017, the exchange had become the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its core. The product's design concentrated liquidity, creating a more liquid market with tighter spreads. Competitors took notice, with some copying the concept and others developing their own versions. Today, the perpetual swap is considered a groundbreaking financial innovation, with an estimated $40-50 trillion in annual turnover. BitMEX chose not to patent the product, focusing instead on building and letting the market validate its value. 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, driven by the desire to address customer complaints and create a revolutionary trading product.