In 2015, on a hiking trail in Hong Kong, the concept of the perpetual swap was born. Ben Delo, BitMEX co-founder, was discussing a problem with his friend Bavik, a derivatives trader.
BitMEX had tried various futures contracts, but customers kept complaining about positions closing without warning. 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. However, he suggested charging traders the bitcoin overnight rate to solve the issue. Delo built the product, inventing one of the most significant financial products of the 21st century.
Initially, BitMEX targeted institutional hedgers, but it was retail traders who dominated the platform. By Halloween 2015, the exchange offered 100x leverage, thanks to Delo's real-time margining system. The perpetual swap launched in May 2016, with a daily funding rate that kept the contract price aligned with the spot price. The early funding rate was derived from third-party lending markets but was later adjusted to a dynamic mechanism that looked inward at the swap's trading activity.
This solution has become the standard for major derivatives exchanges worldwide. 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 replicated by competitors, with every major exchange in crypto offering its own perpetual swap. Delo believes that traditional finance will eventually adopt the perpetual swap, further validating its significance.