The concept of the perpetual swap, also known as a perpetual future or 'perp,' 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 a friend, Bavik, a derivatives trader. BitMEX had been experimenting with various futures contracts, but customers kept complaining about their positions closing unexpectedly. 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 it would be mathematically worth infinity, but suggested charging traders the bitcoin overnight rate to solve the issue. Delo built the product, inventing one of the most significant financial products of the 21st century.
The perpetual swap launched in May 2016, with a core mechanic of a futures contract with no expiry date, anchored to the spot price through a daily funding rate. The funding rate was initially derived from third-party lending markets but was later adjusted to a dynamic rate based on the swap's trading activity.
This innovation led to BitMEX becoming the most liquid bitcoin market, and the perpetual swap has since been adopted by every major derivatives exchange, with a turnover of $40-50 trillion per year. The product's success has attracted the attention of traditional finance regulators, and it may soon be listed on equities.