The concept of a perpetual swap was first conceived in 2015 when Ben Delo, co-founder of BitMEX, was on a hike in Hong Kong with his friend Bavik, a derivatives trader. Delo was struggling to find a solution to the issues with traditional futures contracts, which were not meeting the needs of BitMEX's customers. The customers wanted a product that could provide leverage without the hassle of expiring contracts. Delo's question, 'What if a future never expired?' sparked a discussion that would lead to the development of the perpetual swap.
Bavik's response, 'Mathematically, it would be worth infinity,' highlighted the challenges of creating such a product. However, Delo was determined to find a solution. He built the perpetual swap, which launched in May 2016, and it quickly became a game-changer in the world of crypto trading. The product allowed traders to buy and sell contracts with no expiry date, providing a more efficient and cost-effective way to trade.
The introduction of the funding rate mechanism, which was designed to keep the contract price aligned with the spot price, was a key factor in the success of the perpetual swap. The mechanism worked by charging longs or shorts a funding rate, which was calculated based on the difference between the contract price and the spot price. This dynamic equilibrium allowed market makers to anchor the contract price back to the spot price, creating a more stable and liquid market. The perpetual swap's impact on the crypto market was significant, with BitMEX becoming the most liquid bitcoin market in the world.
The product's success also attracted the attention of traditional finance regulators, with the CFTC reportedly considering allowing perpetual swaps under its framework. Delo's decision not to patent the perpetual swap allowed other exchanges to copy the product, which further increased its adoption and legitimacy. Today, the perpetual swap is considered one of the most successful financial products in history, with a turnover of over $40 trillion per year.
The story of the perpetual swap is a testament to the power of innovation and the importance of listening to customers' needs. It also highlights the potential for crypto products to be adopted by traditional finance, paving the way for further collaboration and growth between the two industries.