The Genesis of a Crypto Revolution: How a Hong Kong Hike Changed Trading Forever

In 2015, a hike in Hong Kong marked the birth of the perpetual swap, a concept that would transform the crypto derivatives market. Ben Delo, BitMEX co-founder, was brainstorming with a friend, Bavik, a derivatives trader, when he posed a question: what if a future never expired? The answer led to the development of a groundbreaking financial product. Initially, customers struggled with traditional futures contracts, which kept expiring without warning. Delo's team experimented with various contract durations, but nothing seemed to work. The perpetual swap was the solution, allowing traders to leverage their positions without the constraints of traditional futures. The product's core mechanic was simple: 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. The early funding rate was derived from third-party lending markets, but as demand for long exposure grew, the mechanism needed to be adjusted. Delo's team developed a dynamic funding rate, looking inward at how the swap was trading rather than outward at external markets. This approach created a dynamic equilibrium, where market makers could anchor the swap back to the spot price. The perpetual swap's success was unprecedented, with BitMEX becoming the most liquid bitcoin market in the world. Competitors took notice, and soon every major exchange in crypto offered its own perpetual swap. The product's impact extends beyond the crypto space, with traditional finance regulators starting to take notice. The CFTC is reportedly making room for perpetual swaps under its framework, and there is speculation that the CME could eventually list them on equities. For Delo, this is the final validation of a product that started as a question on a hillside above Hong Kong.