In 2015, a hike in Hong Kong's countryside led to a groundbreaking idea - the perpetual swap, a financial instrument that would change the face of crypto trading forever. Ben Delo, co-founder of BitMEX, was on that hike, grappling with a problem that had been plaguing him for months. His customers were frustrated with the traditional futures contracts, which kept expiring and closing their positions without warning.
They wanted something that combined the benefits of spot trading with the leverage of derivatives. The solution, born out of a conversation with a friend, was to create a futures contract with no expiry date, anchored to the spot price through a daily funding rate.
This innovative product, the perpetual swap, was launched in May 2016, and its impact was unprecedented. By eliminating the need for multiple futures contracts with different expiry dates, the perpetual swap consolidated liquidity, resulting in a more liquid market with tighter spreads.
The funding rate mechanism, which was dynamically adjusted to reflect the swap's trading activity, ensured that the contract price remained aligned with the spot price. The success of the perpetual swap was swift and profound, with BitMEX becoming the most liquid bitcoin market in the world, processing billions of dollars in daily transactions. The product's influence extended beyond the crypto space, attracting the attention of traditional finance regulators and exchanges.
Today, the perpetual swap is a staple of the crypto derivatives market, with a turnover of trillions of dollars per year, and its impact is still being felt, as traditional finance begins to recognize its value and potential.