How a Chance Encounter on a Hong Kong Hike Paved the Way for a Crypto Trading Revolution

The concept of the perpetual swap, a pivotal innovation in crypto trading, was born on a hiking trail in Hong Kong in 2015. Ben Delo, co-founder of BitMEX and a mathematician, was discussing a persistent problem with a friend, Bavik, a derivatives trader. BitMEX had been experimenting with various futures contracts, but customers were consistently dissatisfied with positions closing unexpectedly. Delo's friend suggested a future with no expiration date, which theoretically would be worth infinity due to the compounding carrying cost. However, by charging traders the bitcoin overnight rate, similar to LIBOR in traditional finance, this issue could be resolved. Delo built this concept into a product, inventing one of the most influential financial instruments of the 21st century. Initially, BitMEX was designed for institutional hedgers, but it ended up catering to sophisticated retail traders seeking high leverage and speculation. By offering 100x leverage and a real-time margining system, BitMEX listened to its customers' needs. The perpetual swap, launched in 2016, was a futures contract with no expiry date, anchored to the spot price through a daily funding rate. This mechanism allowed longs and shorts to be balanced without BitMEX taking a cut. The funding rate was initially derived from third-party lending markets but was later adjusted dynamically based on the swap's trading activity. This innovation allowed market makers to anchor the swap's price back to the spot price, creating a dynamic equilibrium. The perpetual swap became incredibly successful, with BitMEX processing $3-4 billion daily by 2017. The concentration of liquidity was a direct result of the swap's design, and competitors soon took notice, with many copying the concept. Today, the perpetual swap is considered one of the most successful financial products in history, with an estimated $40-50 trillion in annual turnover. BitMEX chose not to patent the perpetual swap, focusing instead on building and letting the market validate its worth. Now, traditional finance regulators are taking notice, with the potential for perpetual swaps to be listed on traditional exchanges, marking the final validation of Delo's innovative concept.