In 2015, a hike in Hong Kong's countryside led to the creation of the perpetual swap, a groundbreaking financial product that would change the face of crypto trading. Ben Delo, BitMEX's co-founder, was on a hike with his friend Bavik, a derivatives trader, when he posed a question: what if a futures contract never expired? The answer to this question would eventually become the perpetual swap, a product that allowed traders to buy and sell with leverage, without the constraint of an expiry date. The idea was simple yet profound, and it would go on to become one of the most influential financial innovations of the 21st century.
To understand the significance of the perpetual swap, it's essential to consider the context in which it was created. In 2014, Delo and his co-founder Arthur Hayes launched BitMEX, an exchange designed to provide institutional hedgers with a platform to manage their exposure to bitcoin.
However, the institutions never came, and instead, the exchange attracted retail traders who were looking to speculate on the price of bitcoin. These traders wanted a product that would allow them to trade with leverage, but without the complexity of traditional futures contracts.
The perpetual swap was the answer to their needs. The product was launched in May 2016, and it quickly gained popularity among traders. The core mechanic was straightforward: 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 funding rate was designed to keep the price of the swap in line with the spot price of bitcoin, and it was calculated based on the difference between the two prices. The perpetual swap was a huge success, and it quickly became the most popular product on the BitMEX exchange. By 2017, the exchange was processing $3-4 billion in trades every day, and the perpetual swap was at the center of it all. The product's success was not limited to BitMEX, as it soon became a standard feature on other crypto exchanges.
Today, the perpetual swap is one of the most widely traded financial products in the world, with a turnover of over $40 trillion per year. The story of the perpetual swap is a testament to the power of innovation and the importance of listening to customers. It's a reminder that even the most complex financial products can be simplified and made accessible to a wider audience, and that the next big thing in finance can come from the most unexpected places.