The concept of the perpetual swap, also known as a perpetual future or 'perp,' was conceived during a 2015 hike in Hong Kong. Ben Delo, BitMEX co-founder and mathematician, was discussing a persistent problem with a friend, Bavik, a derivatives trader.
BitMEX had experimented with various futures contracts, including quarterly, monthly, weekly, 48-hour, and 24-hour contracts, but none met customer demands. Customers wanted a product that resembled spot trading but offered the leverage of derivatives. Delo posed a question: 'What if a future never expired?' Bavik's response was that it would theoretically be worth infinity due to the compounding carrying cost.
However, he suggested charging traders the bitcoin overnight rate to address this issue. Delo then built this concept into a product, inventing one of the most significant financial products of the 21st century.
Initially, BitMEX targeted institutional hedgers, but it was retail traders who dominate the platform. By offering 100x leverage and a real-time margining system, BitMEX catered to these traders' needs.
The perpetual swap, launched in May 2016, was a futures contract with no expiry date, anchored to the spot price through a daily funding rate. The early funding rate was derived from third-party lending markets but was later adjusted to a dynamic rate based on the swap's trading activity.
This mechanism 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 concentration of liquidity was a result of the swap's design, which consolidated market maker capital into one instrument.
Competitors noticed, and every major exchange in crypto now offers its own perpetual swap. Delo considers the fact that other exchanges have copied the swap as proof of its financial innovation, with an estimated $40-50 trillion in annual turnover. The perpetual swap is now attracting the attention of traditional finance regulators, with the potential for it to be listed on equities in the future.