The Genesis of a Revolutionary Trading Concept: How a Hong Kong Hike Paved the Way for Crypto's Future

In 2015, a hike in Hong Kong's countryside sparked an epiphany that would change the face of cryptocurrency trading. Ben Delo, BitMEX co-founder and mathematician, was on a hike with his friend Bavik, a derivatives trader, grappling with a persistent issue. BitMEX had experimented with various futures contracts, but customers continued to express frustration over positions closing without warning. They yearned for a product that mimicked spot trading but offered the leverage of a derivatives exchange. Delo posed a question: what if a future never expired? Bavik's response was immediate: mathematically, it would be worth infinity. However, he proposed a solution: charge traders the bitcoin overnight rate. This conversation laid the groundwork for the perpetual swap, a concept that would become a cornerstone of cryptocurrency trading. The perpetual swap's launch in May 2016 was understated, yet its impact was profound. The core mechanism 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. Initially, the funding rate was derived from third-party lending markets, but as bitcoin's price rose, the mechanism needed adjustment. Delo introduced a dynamic funding rate, looking inward at the swap's trading activity rather than external lending markets. This solution proved elegant, as market makers could anticipate the rate and adjust their strategies accordingly. By 2017, BitMEX had become the most liquid bitcoin market, with the perpetual swap at its core. The exchange's daily trading volume reached $3-4 billion, and price discovery for bitcoin shifted from traditional exchanges to the BitMEX order book. Competitors took notice, and soon every major exchange in crypto offered its own perpetual swap, built on the funding rate architecture that Delo had pioneered. The product's success is a testament to the power of innovation in financial markets. With traditional finance regulators now taking notice, the perpetual swap is poised to leave an indelible mark on the world of finance.