The concept of the perpetual swap, also known as a perpetual future, was conceived in 2015 on a hiking trail in Hong Kong. Ben Delo, co-founder of BitMEX and a mathematician, was discussing a problem with his friend Bavik, a derivatives trader. BitMEX had been experimenting with various futures contracts, including quarterly, monthly, weekly, 48-hour, and 24-hour contracts, but none of them were working as intended.
Customers complained that their positions were closing without warning, and they wanted a product that resembled spot trading but offered the leverage of a derivatives exchange. Delo asked, "What if a future never expired?" Bavik replied that mathematically, it would be worth infinity. However, he suggested charging traders the bitcoin overnight rate to solve the problem. Delo built the product, which became one of the most significant financial innovations of the 21st century.
The perpetual swap was launched in May 2016, and its core mechanism 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 was later adjusted to a dynamic rate based on the swap's trading activity. This solution allowed market makers to anchor the swap's price to the spot price, creating a dynamic equilibrium.
The perpetual swap became a huge success, and by 2017, BitMEX was the most liquid bitcoin market in the world, processing $3-4 billion per day. The product's design concentrated liquidity, making it a more liquid market with tighter spreads.
Competitors noticed, and soon every major exchange in crypto offered its own perpetual swap. Delo believes that the fact that every other exchange has copied the swap proves its financial innovation, with an estimated $40-50 trillion in annual turnover. The product is now attracting the attention of traditional finance regulators, and Delo expects it to have a significant impact once traditional finance recognizes its benefits.