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 co-founder and mathematician, was discussing a nagging issue with a friend, Bavik, a derivatives trader.
BitMEX had experimented with various futures contracts, but customers consistently complained about positions closing without warning. They desired a product that mimicked spot trading but offered the leverage of a derivatives exchange.
Delo posed a question: 'What if a future never expired?' Bavik's response was immediate: 'Mathematically, it would be worth infinity.' Although technically correct, Bavik proposed a solution: charge traders the bitcoin overnight rate. Delo built it, inventing one of the most influential financial products of the 21st century.
BitMEX was initially designed for institutional hedgers, but it attracted sophisticated retail traders seeking speculation and high leverage. By Halloween 2015, the exchange offered 100x leverage, courtesy of Delo's real-time margining system.
The perpetual swap launched in May 2016, with a daily funding rate that anchored the contract to the spot price. Initially, the funding rate was derived from external lending markets, but it was later adjusted to a dynamic, inward-looking mechanism. This solution, which has been adopted by major derivatives exchanges, measures the gap between the swap and spot price over an eight-hour window and back-calculates the annualized rate.
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 recognized, with competitors copying the concept and traditional finance regulators taking notice. Delo believes that once traditional finance understands the benefits of perpetual swaps, their adoption will be impressive.