How a Hong Kong Hike Revolutionized Crypto Trading Forever

In 2015, a hike in Hong Kong's countryside sparked an idea that would change the face of cryptocurrency trading. Ben Delo, co-founder of BitMEX, was discussing a problem with his friend Bavik, a derivatives trader. BitMEX had been experimenting with various futures contracts, but customers were consistently complaining about their positions closing unexpectedly. They wanted a product that combined the benefits of spot trading with the leverage of derivatives. Delo asked, "What if a future never expired?" Bavik's response was that it would be worth infinity from a mathematical standpoint, but he also suggested a solution: charge traders the bitcoin overnight rate. This conversation laid the groundwork for the invention of the perpetual swap, a financial product that would go on to revolutionize the crypto trading landscape. 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 soon became clear that this approach was not sustainable. As Bitcoin's price rose in 2016 and 2017, demand for long exposure on BitMEX overwhelmed the funding mechanism, causing the contract price to drift away from the actual price of bitcoin. To address this issue, Delo developed a dynamic funding rate that looked inward at how the swap was trading, rather than relying on external lending markets. This solution proved elegant and effective, allowing market makers to anchor the swap back down to the spot price. The perpetual swap's success was rapid, with BitMEX becoming the most liquid bitcoin market in the world by 2017. The exchange was processing $3-4 billion a day, and the perpetual swap was at the center of it all. The product's design concentrated liquidity, making it a more attractive option for traders. Competitors took notice, and soon every major exchange in crypto was offering its own perpetual swap, each built on the funding rate architecture that Delo had developed. Today, the perpetual swap is considered one of the most successful financial products in history, with a turnover of $40-50 trillion dollars a year. BitMEX chose not to patent the perpetual swap, instead focusing on building and improving the product. Now, a decade on, the product is attracting the attention of traditional finance regulators, with the CFTC reportedly making room for perpetual swaps under its framework. For Delo, this is the final validation of an idea that started as a question on a hillside above Hong Kong.