In 2015, during a hike in Hong Kong, the concept of the perpetual swap, also known as a perpetual future or 'perp,' was conceived. Ben Delo, BitMEX co-founder and mathematician, was on a hike with friend and derivatives trader Bavik, grappling with a problem that had been plaguing him for months.
BitMEX had experimented with various futures contracts, but customers continued to complain about their positions closing without warning, seeking a product that resembled spot trading but offered the leverage of a derivatives exchange. Delo asked, 'What if a future never expired?' Bavik's response was that it would be mathematically worth infinity. However, he suggested charging traders the bitcoin overnight rate to address this issue.
Delo built this concept into a product, inventing one of the most influential financial products of the 21st century. Initially, BitMEX aimed to cater to institutional hedgers, but it was retail traders who dominated the platform, seeking high leverage and speculation opportunities.
By October 2015, BitMEX offered 100x leverage, thanks to Delo's real-time margining system. The perpetual swap launched in May 2016, allowing for a futures contract with no expiry date, anchored to the spot price through a daily funding rate. Longs paid shorts, or vice versa, depending on whether the swap was trading above or below spot, with BitMEX taking no cut. The funding rate was initially derived from external lending markets but was later adjusted to be dynamic, looking inward at 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 product's success led to its adoption by other exchanges, with Delo estimating it now handles $40-50 trillion in turnover annually.
Despite considering patenting the perpetual swap, BitMEX chose to focus on building instead, and the product is now attracting traditional finance regulators' attention.