The concept of the perpetual swap was conceived on a hiking trail in Hong Kong in 2015. Ben Delo, co-founder of BitMEX, was discussing a persistent issue with a friend, Bavik, a derivatives trader. BitMEX had experimented with various futures contracts, but customers were consistently frustrated with positions closing unexpectedly.
Delo's friend suggested a future with no expiration date, which theoretically would have infinite value. However, by charging an overnight rate, similar to LIBOR in traditional finance, the issue could be resolved. The problem was that such a rate did not exist for bitcoin at the time. Delo decided to create it, laying the groundwork for one of the most influential financial products of the 21st century.
BitMEX was initially designed for institutional hedgers, but it attracted sophisticated retail traders seeking high leverage instead. The exchange offered 100x leverage by Halloween 2015, thanks to Delo's real-time margining system. The perpetual swap was launched in May 2016, with a core mechanic that involved a futures contract with no expiry date, anchored to the spot price through a daily funding rate. Initially, the funding rate was derived from third-party lending markets but was later adjusted to a dynamic rate based on the swap's trading activity.
This innovation allowed market makers to keep the contract price aligned with the spot price of bitcoin, creating a dynamic equilibrium. By 2017, BitMEX had become the most liquid bitcoin market, with the perpetual swap at its core. The product's success led to its adoption by other exchanges, and it is now considered one of the most successful financial products in history, with an estimated $40-50 trillion in annual turnover.
The concept has also attracted the attention of traditional finance regulators, with the potential for perpetual swaps to be listed on equities in the future.