In 2015, Ben Delo, co-founder of BitMEX, was on a hike in Hong Kong, discussing a problem that had been bothering him for months. BitMEX had been trying various futures contracts, but customers kept complaining about their positions closing without warning. They wanted a product that looked and traded like spot, but with the leverage of a derivatives exchange. Delo's friend, Bavik, a derivatives trader, suggested a future that never expired, which led to the creation of the perpetual swap.
The perpetual swap was launched in May 2016, with a daily funding rate that kept the contract price anchored to the spot price. The funding rate was initially derived from third-party lending markets but was later adjusted to be dynamic, looking inward at how the swap was trading. This mechanism allowed market makers to anchor the swap price back to the spot price, creating a dynamic equilibrium.
The perpetual swap became a huge success, with BitMEX becoming the most liquid bitcoin market in the world. The product has since been copied by other exchanges, with the funding rate architecture being used by every major derivatives exchange.
The perpetual swap has attracted the attention of traditional finance regulators, with the CFTC reportedly making room for it under its framework. Delo believes that once traditional finance sees the benefits of this financial product, it will be impressive.