How a Hong Kong Hike Revolutionized Crypto Trading

In 2015, a conversation between Ben Delo and his friend Bavik on a hiking trail in Hong Kong led to the creation of the perpetual swap, also known as a perpetual future or 'perp'. Delo, a mathematician and BitMEX co-founder, was struggling to find a solution to the problems faced by his customers, who were frustrated with their positions closing without warning. They wanted a product that combined the benefits of spot trading with the leverage of derivatives. Delo's friend Bavik suggested a future that never expired, which would be valued at infinity. However, they realized that this could be achieved by charging traders the bitcoin overnight rate. The perpetual swap was born, and it would go on to change the face of crypto trading forever. The launch of the perpetual swap in May 2016 marked a significant turning point for BitMEX, which was initially designed for institutional hedgers but eventually became a hub for retail traders. The exchange's decision to offer 100x leverage and a real-time margining system helped to attract a new wave of traders. However, the early funding rate, which was derived from third-party lending markets, proved to be inadequate, and the swap started trading at a persistent premium to spot. Delo and his team had to dynamically adjust the funding rate to keep the contract price aligned with the actual price of bitcoin. The solution they came up with, which involved measuring the gap between the swap and spot prices over an eight-hour window, has since become the standard for the industry. Today, the perpetual swap is one of the most successful financial products in history, with a turnover of over $40 trillion per year. Despite its success, BitMEX chose not to patent the perpetual swap, opting instead to focus on building and improving the product. As traditional finance regulators begin to take notice of the perpetual swap, it's likely that we'll see even more innovation and growth in the crypto trading space.