The Genesis of a Revolutionary Trading Concept: How a Hong Kong Hike Changed Crypto Forever

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 discussing a persistent problem with a friend, Bavik, a derivatives trader. BitMEX had experimented with various futures contracts, but customers continued to express frustration over positions closing without warning, seeking a product that mimicked spot trading but offered the leverage of a derivatives exchange. Delo's query, 'What if a future never expired?' was met with Bavik's response that it would theoretically be worth infinity due to the compounding carrying cost. However, Bavik proposed charging traders the bitcoin overnight rate to address this. Delo then built this concept, inventing a pivotal financial product of the 21st century. Initially, BitMEX aimed to serve institutional hedgers, but it was retail traders who flocked to the platform, seeking high leverage for speculation. By offering 100x leverage and a real-time margining system, BitMEX catered to this demand. The perpetual swap, launched in 2016, was a futures contract with no expiry, anchored to the spot price via a daily funding rate. Longs paid shorts, or vice versa, based on whether the swap traded above or below spot, with BitMEX taking no cut. The early funding rate was derived from third-party lending markets but was later adjusted dynamically based on the swap's trading to maintain alignment with the spot price. 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. Competitors noticed, and the product has been widely adopted. Delo believes the perpetual swap's success, with turnover potentially reaching $40-50 trillion annually, validates its financial innovation, attracting traditional finance regulators' attention.