How a Hong Kong Hike Revolutionized Crypto Trading Forever

The concept of the perpetual swap, also known as a perpetual future, was born on a hiking trail in Hong Kong in 2015. Ben Delo, BitMEX co-founder and mathematician, was discussing a problem with his friend Bavik, a derivatives trader. BitMEX had tried various futures contracts, but customers were unhappy with positions closing unexpectedly. Delo asked, "What if a future never expired?" Bavik replied that it would be mathematically worth infinity, but suggested charging an overnight rate to balance it. Delo built this concept into a product, inventing one of the most significant financial products of the 21st century. BitMEX was initially designed for institutional hedgers, but it attracted retail traders seeking high leverage. By 2015, the exchange offered 100x leverage, thanks to Delo's real-time margining system. The perpetual swap launched in 2016, with a daily funding rate to keep the price anchored to the spot price. Initially, the funding rate was derived from external lending markets, but it was later adjusted to a dynamic rate based on the swap's trading activity. This innovation allowed market makers to anchor the price, creating a dynamic equilibrium. The perpetual swap became a huge success, and by 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion daily. The product's design consolidated liquidity, creating a more liquid market with tighter spreads. Competitors took notice, and every major exchange in crypto now offers a perpetual swap based on Delo's funding rate architecture. The product's success has attracted traditional finance regulators, with the CFTC considering perpetual swaps under its framework. Delo believes that once traditional finance recognizes the benefits of this product, it will be a significant milestone.