In 2015, on a hiking trail 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 problem with his friend Bavik, a derivatives trader. BitMEX had tried various futures contracts, but customers complained about positions closing without warning.

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 replied that it would be mathematically worth infinity due to compounding carrying costs.

However, he suggested charging traders the bitcoin overnight rate, similar to LIBOR in traditional finance. Delo built this concept, inventing one of the most significant financial products of the 21st century. Initially, BitMEX targeted institutional hedgers, but it was retail traders who flocked to the platform, seeking high-leverage speculation.

By 2015, BitMEX offered 100x leverage, thanks to Delo's real-time margining system. The issue with futures contracts was basis, the premium at which a futures contract trades above the spot price. In traditional finance, this is well understood, but in crypto, it caused confusion. Customers struggled to understand why bitcoin was more expensive on BitMEX and why their positions were closing.

Delo's conversation on the hiking trail led to the development of the perpetual swap, which launched in 2016. The core mechanic was straightforward: 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 was later adjusted to be dynamic, looking inward at how the swap was trading rather than outward at other markets. This solution, which measured the gap between the swap and spot over an eight-hour window, is now used by every major derivatives exchange. By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its center. The product's success led to competitors copying it, and eventually, every major exchange in crypto offered its own perpetual swap.

Delo believes the product's success, with $40-50 trillion in annual turnover, is a testament to its financial innovation. BitMEX chose not to patent the perpetual swap, focusing on building instead. Now, traditional finance regulators are taking notice, with the CFTC reportedly making room for perpetual swaps, and speculation that the CME could list them on equities.

For Delo, this is the final validation of a concept born on a hillside above Hong Kong.