How a Hong Kong Hike Revolutionized Crypto Trading Forever

In 2015, while hiking in Hong Kong, the concept of the perpetual swap, also known as a perpetual future or 'perp,' was conceived. Ben Delo, BitMEX co-founder and mathematician, was on a hike with Bavik, a derivatives trader, grappling with a problem that had been bothering him for months. BitMEX had tried everything: quarterly futures, monthly futures, weekly futures, 48-hour futures, and even a contract that lasted just 24 hours before resetting. Nothing seemed to work. Customers kept complaining that their positions were closing without warning, seeking a product that resembled spot trading but offered the leverage of a derivatives exchange. Delo asked, 'What if a future never expired?' Bavik's response was immediate: 'Mathematically, it would be worth infinity.' Although technically correct, Bavik proposed a solution: charge traders the bitcoin overnight rate. However, Delo realized that such a rate did not exist, so he decided to create it. In doing so, he invented one of the most significant financial products of the 21st century. To understand the impact of the perpetual swap, it's essential to comprehend what BitMEX was trying to achieve before becoming the most liquid bitcoin market. When Delo and Arthur Hayes founded the exchange in 2014, they focused on institutional hedgers, not retail traders. Hayes had worked at Deutsche Bank, while Delo spent years building high-frequency trading systems at JP Morgan. Their thesis was that bitcoin miners and payment companies needed a way to hedge their exposure, and BitMEX would provide the professional infrastructure. The institutions never came, but traders did. By Halloween 2015, the exchange offered 100x leverage, made possible by a real-time margining system Delo built from scratch. The issue with futures, even short-dated ones, was basis - the premium at which a futures contract trades above the spot price of the underlying asset. In traditional finance, this is well understood, but in crypto, in 2015, it confused almost everyone. BitMEX kept shortening the expiry of its listed futures contracts, but customers still complained about positions closing without warning. Delo's conversation on the hiking trail provided the framework to build a solution. The perpetual swap launched in May 2016 with a straightforward core mechanic: 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 it worked only until it did not. As Bitcoin rose in 2016 and 2017, demand for long exposure on BitMEX overwhelmed the funding mechanism. The swap started trading at a persistent premium to spot, causing the contract price to drift away from the actual price of bitcoin. Delo had to dynamically adjust how the funding rate was calculated, replacing the fixed reference point with a dynamic one that looked inward at how the swap was trading. The solution was elegant: measuring how far the swap was trading above or below spot over an eight-hour window, treating that gap as an implied basis, and back-calculating the annualized rate from it. This is the funding rate mechanism used by every major derivatives exchange today. By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion a day, with the perpetual swap at its center. The concentration of liquidity was a product of the swap's design, collapsing multiple instruments into one. Competitors noticed, and every major exchange in crypto now offers its own perpetual swap, each built on the funding rate architecture Delo created. The fact that every other exchange has copied the swap proves its financial innovation. Delo believes it now does $40-50 trillion in turnover annually, making it one of the most successful products in the history of capitalism. BitMEX chose not to patent the perpetual swap, deciding to focus on building instead. Now, a decade later, the product is attracting traditional finance regulators' attention, with the CFTC reportedly making room for perpetual swaps and speculation that the CME could list them on equities. For Delo, this prospect is the final validation of something that started as a question on a hillside above Hong Kong.