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.
Bavik's response was that it would be worth infinity, but also suggested a solution - charging traders the bitcoin overnight rate. This idea led to the development of the perpetual swap, a futures contract with no expiry date, anchored to the spot price through a daily funding rate.
The launch of the perpetual swap in May 2016 was a game-changer for BitMEX, which became the most liquid bitcoin market in the world. The product's success can be attributed to its ability to provide a leveraged product that never expired, meeting the needs of traders who wanted to speculate with high leverage. The funding rate mechanism, which was dynamically adjusted to reflect market conditions, played a crucial role in the product's success.
Today, the perpetual swap is used by every major derivatives exchange in the world, with a turnover of over $40 trillion a year, making it one of the most successful financial products in history.