In 2015, mathematician and BitMEX co-founder Ben Delo was on a hike in Hong Kong, pondering a problem that had been plaguing him for months. His exchange, BitMEX, had been trying various futures contracts, but customers kept complaining about positions closing without warning. Delo's friend and derivatives trader, Bavik, suggested a solution: a futures contract with no expiry date. Delo recalls Bavik saying, 'Mathematically, it would be worth infinity.' However, Bavik proposed charging traders the bitcoin overnight rate to solve the issue.
Delo built the product, and the perpetual swap was born. The swap launched in May 2016 and initially used a funding rate derived from third-party lending markets. However, as demand for long exposure on BitMEX increased, the funding mechanism needed to be adjusted. Delo developed a dynamic funding rate that looked inward at how the swap was trading, rather than relying on external lending markets.
This approach allowed market makers to anchor the swap's price back to the spot price, creating a dynamic equilibrium. The perpetual swap's success was unprecedented, with BitMEX becoming the most liquid bitcoin market in the world. The product's design consolidated liquidity, resulting in tighter spreads and a more liquid market.
Competitors took notice, and soon every major exchange in crypto offered its own perpetual swap. Delo's innovation has attracted the attention of traditional finance regulators, with the CFTC reportedly making room for perpetual swaps under its framework.
The perpetual swap's impact on the financial world is undeniable, with Delo estimating that it now facilitates $40-50 trillion in turnover annually.