It all began in 2015, on a hiking trail in Hong Kong, where the concept of the perpetual swap, also known as a perpetual future, was conceived. Ben Delo, a mathematician and co-founder of BitMEX, was discussing a problem with his friend Bavik, a derivatives trader, which had been bothering him for months. At that time, BitMEX had been experimenting with various types of futures contracts, including quarterly, monthly, weekly, 48-hour, and even 24-hour contracts, but none were working as intended.
Customers were complaining about their positions being closed without warning, and 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's response was that it would be worth infinity from a mathematical standpoint. However, he suggested charging traders the bitcoin overnight rate to address the issue.
The problem was that such a rate did not exist at the time. Delo decided to create it, and in doing so, he invented one of the most significant financial products of the 21st century.
The story of BitMEX's early days and the development of the perpetual swap is a fascinating one. When Delo and Arthur Hayes founded the exchange in 2014, their focus was on institutional hedgers, not retail traders. Hayes had previously worked at Deutsche Bank, while Delo had built high-frequency trading systems at JP Morgan. Their goal was to provide professional infrastructure for bitcoin miners and payment companies to hedge their exposure.
However, the institutions never came, and instead, the exchange attracted sophisticated retail traders who wanted to speculate with high leverage. By Halloween 2015, BitMEX was offering 100x leverage, thanks to a real-time margining system built by Delo. The issue with futures contracts, even short-dated ones, was the basis, or the premium at which a futures contract trades above the spot price of the underlying asset.
This concept was not well understood in the crypto space at the time. Customers would ask why bitcoin was more expensive on BitMEX, and the response would be to short it, which would often confuse them.
The perpetual swap, launched in May 2016, changed everything. It was 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. The early funding rate was derived from third-party lending markets, but it eventually became dynamic, looking inward at how the swap was trading rather than outward at external markets.
This mechanism has become the standard for every major derivatives exchange in the world. By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion a day, with the perpetual swap at its core. The concentration of liquidity was a result of the swap's design, which collapsed multiple contracts into one instrument.
Competitors took notice, and some even copied the product without fully understanding how it worked. Today, every major exchange in crypto offers its own perpetual swap, each built on the funding rate architecture that Delo pioneered. The fact that the perpetual swap has been copied by every other exchange is a testament to its financial innovation. With a turnover of $40-50 trillion a year, it is one of the most successful products in the history of capitalism.
BitMEX chose not to patent the perpetual swap, opting instead to focus on building and letting the market decide its value. Now, a decade later, the product is attracting the attention of traditional finance regulators, with the CFTC reportedly making room for perpetual swaps under its framework. For Delo, this is the final validation of an idea that started as a question on a hillside above Hong Kong, asked by someone who had grown tired of watching his customers complain about disappearing positions.