The Genesis of a Cryptocurrency Trading Revolution: A Hike in Hong Kong

The concept of the perpetual swap, also known as a perpetual future, was conceived on a hiking trail in Hong Kong in 2015. Ben Delo, a mathematician and co-founder of BitMEX, was discussing a problem with his friend Bavik, a derivatives trader. BitMEX had been experimenting with various types of futures contracts, but customers were consistently complaining about their positions being closed without warning. Delo asked, "What if a future never expired?" Bavik's response was that it would be mathematically worth infinity, but he suggested charging traders the bitcoin overnight rate to make it viable. Delo built the product, and in doing so, created one of the most influential financial products of the 21st century. The perpetual swap was launched in May 2016, with a core mechanic that was straightforward: a futures contract with no expiry date, anchored to the spot price through a daily funding rate. The early funding rate was derived from third-party lending markets, but it eventually had to be adjusted to respond to conditions on BitMEX. The solution was to look inward at how the swap was trading, rather than outward at other markets. This approach has since been adopted by every major derivatives exchange in the world. By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion a day, with the perpetual swap at its center. The product's success has been validated by its widespread adoption, with every major exchange in crypto offering its own perpetual swap. The fact that traditional finance regulators are now taking notice is a testament to the product's innovation and potential.