In 2015, on a hike in Hong Kong, the concept of a perpetual swap, also known as a perpetual future or 'perp,' was conceived. Ben Delo, BitMEX co-founder and mathematician, was discussing a problem with his friend Bavik, a derivatives trader. BitMEX had tried various futures contracts, but customers kept complaining about positions closing without warning.
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, 'Mathematically, it would be worth infinity.' 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 daily funding rate that kept the contract price aligned with the spot price.
Initially, the funding rate was derived from external lending markets, but it was later adjusted to a dynamic rate based on the swap's trading activity. This mechanism has become the standard for major derivatives exchanges. By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its core. The product's success has led to its adoption by other exchanges, with an estimated $40-50 trillion in annual turnover.
Delo believes traditional finance will eventually recognize the benefits of perpetual swaps, leading to further validation of the product.