In 2015, on a Hong Kong hiking trail, the concept of the perpetual swap was born. 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, but customers complained about positions closing unexpectedly. They wanted a product that resembled spot trading but offered the leverage of a derivatives exchange.
Delo asked, "What if a future never expired?" Bavik replied that it would be worth infinity from a mathematical standpoint. However, he suggested charging traders the bitcoin overnight rate to solve the issue. Delo built this concept, inventing one of the most significant 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 Halloween 2015, BitMEX offered 100x leverage, thanks to Delo's real-time margining system. The perpetual swap launched in May 2016, with a daily funding rate that kept the contract price aligned with the spot price.
The funding rate was initially derived from external lending markets but was later adjusted dynamically based on the swap's trading activity. This mechanism has become the standard for major derivatives exchanges. 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 validated by its widespread adoption and is now attracting the attention of traditional finance regulators.