How a Hong Kong Hike Paved the Way for a Revolutionary Crypto Trading Product

The concept of the perpetual swap was born out of frustration with traditional futures contracts, which were not meeting the needs of crypto traders. Ben Delo, co-founder of BitMEX, was on a hike with a friend, Bavik, a derivatives trader, when he asked, 'What if a future never expired?' This sparked an idea that would change the face of crypto trading. The perpetual swap, also known as a 'perp,' is a futures contract with no expiry date, allowing traders to buy and sell with leverage. The key to making it work was the introduction of a funding rate, which was initially derived from third-party lending markets. However, as demand for long exposure on BitMEX grew, the funding rate had to be adjusted dynamically to keep the contract price aligned with the spot price of bitcoin. The solution was to look inward at how the swap was trading, rather than outward at external lending markets. This approach allowed BitMEX to create a dynamic equilibrium, where market makers could anchor the swap price back to the spot price. The perpetual swap was launched in May 2016 and quickly became the most liquid bitcoin market in the world. Its success can be measured by the fact that every major derivatives exchange in the world now offers its own version of the perpetual swap, using the funding rate mechanism developed by Delo. The product has attracted the attention of traditional finance regulators, with the CFTC reportedly making room for perpetual swaps under its framework. As the perpetual swap continues to evolve, it is clear that it has become a cornerstone of the crypto trading landscape, and its impact will be felt for years to come.