How a Hong Kong Hike Revolutionized Crypto Trading

In 2015, a conversation on a hiking trail in Hong Kong sparked the creation of the perpetual swap, also known as a perpetual future or 'perp.' Ben Delo, BitMEX co-founder and mathematician, was discussing a problem with his friend Bavik, a derivatives trader. BitMEX had tried various futures contracts, but customers complained about positions closing unexpectedly. They wanted a product that resembled spot trading but offered the leverage of derivatives. Delo asked, 'What if a future never expired?' Bavik replied that it would be mathematically worth infinity due to the compounding carrying cost. However, he suggested charging traders the bitcoin overnight rate to solve the issue. Delo built this concept into a product, inventing one of the most significant financial products of the 21st century. Initially, BitMEX targeted institutional hedgers, but it was retail traders who flocked to the platform. By Halloween 2015, BitMEX offered 100x leverage, thanks to Delo's real-time margining system. The perpetual swap 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. The early funding rate was derived from third-party lending markets but eventually became dynamic, looking inward at how the swap was trading on BitMEX. This solution, which has been adopted by major derivatives exchanges worldwide, 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 validated by its widespread adoption, and it is now attracting the attention of traditional finance regulators. Delo believes that once traditional finance recognizes the benefits of the perpetual swap, it will be impressive.