The Story Behind the Crypto Trading Revolution Born on a Hong Kong Hike

The concept of the perpetual swap, also known as a perpetual future or 'perp', was conceived in 2015 on a hiking trail in Hong Kong. Ben Delo, BitMEX co-founder and mathematician, was discussing a problem with his friend Bavik, a derivatives trader. BitMEX had been experimenting with various futures contracts, but customers were complaining about their positions closing unexpectedly. They wanted a product that resembled spot trading but offered the leverage of derivatives. Delo asked, 'What if a future never expired?' Bavik replied that it would be mathematically worth infinity, but suggested charging traders the bitcoin overnight rate to solve the issue. Delo built the solution, inventing one of the most significant financial products of the 21st century. The perpetual swap was launched in May 2016, with a daily funding rate that kept the contract price aligned with the spot price. Initially, the funding rate was derived from third-party lending markets, but it was later adjusted to a dynamic system that looked inward at the swap's trading activity. This mechanism, now used by major derivatives exchanges worldwide, has become a cornerstone of the crypto market. By 2017, BitMEX had become the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its core. The product's success has attracted traditional finance regulators, with the CFTC reportedly making room for perpetual swaps under its framework. Delo believes that once traditional finance recognizes the benefits of this financial product, it will be a significant validation of the innovation born on that Hong Kong hike.