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 in 2015 on a hiking trail in Hong Kong. Ben Delo, BitMEX's co-founder and a mathematician, was discussing a persistent problem with a friend named Bavik, a derivatives trader. BitMEX had tried various approaches, including quarterly, monthly, weekly, 48-hour, and 24-hour futures contracts, but none of them worked as intended. Customers complained that their positions were being closed without warning, and 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's response was that it would be mathematically worth infinity. However, he suggested charging traders the bitcoin overnight rate, similar to how LIBOR is used in traditional finance. Delo built this concept into a product, inventing one of the most significant financial products of the 21st century. Initially, BitMEX was designed for institutional hedgers, but it eventually became a platform for retail traders seeking high leverage. The exchange introduced 100x leverage by Halloween 2015, made possible by a real-time margining system. The perpetual swap launched in May 2016, with a core mechanic that was straightforward: 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. The early funding rate was derived from third-party lending markets, but it was later adjusted to a dynamic approach that looked inward at how the swap was trading. This solution was elegant and has become the standard for every major derivatives exchange. By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its center. The product's success has been immense, with other exchanges copying the concept and the funding rate architecture. Delo believes that traditional finance will eventually adopt the perpetual swap, and it will be impressive to see its benefits realized.