How a Chance Encounter on a Hong Kong Hike Revolutionized Crypto Trading

The concept of the perpetual swap, a groundbreaking financial instrument, was conceived on a hiking trail in Hong Kong in 2015. Ben Delo, BitMEX co-founder and mathematician, was brainstorming with Bavik, a derivatives trader, to address a persistent issue: customers were frustrated with positions closing unexpectedly. Delo asked, "What if a future never expired?" Bavik's response, "Mathematically, it would be worth infinity," sparked an idea. To make it work, they would need to charge traders an overnight rate, similar to LIBOR in traditional finance. However, such a rate did not exist for bitcoin, so Delo created it. This innovation led to the development of one of the most influential financial products of the 21st century. Initially, BitMEX targeted institutional hedgers, but it was retail traders who flocked to the platform, seeking high-leverage speculation. By offering 100x leverage and a real-time margining system, BitMEX met this demand. The perpetual swap, launched in 2016, was a futures contract with no expiry date, anchored to the spot price through a daily funding rate. This mechanism allowed longs and shorts to interact dynamically, keeping the contract price aligned with the actual bitcoin price. The funding rate, initially derived from external lending markets, was later adjusted to be dynamic, reflecting the swap's trading activity. This innovation 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 acknowledged by traditional finance regulators, with the CFTC considering its inclusion in their framework. Delo believes that once traditional finance fully adopts this financial product, its benefits will become apparent.