The inside story of how a hike in Hong Kong changed crypto trading forever

The perpetual swap, also known as a perpetual future or "perp," was invented in 2015 during a hiking trip in Hong Kong by Ben Delo, co-founder of BitMEX, and his friend Bavik, a derivatives trader. BitMEX had struggled to create a futures product that satisfied customers who wanted a leveraged trading instrument that behaved more like spot trading and did not expire abruptly. By removing the expiry date from futures contracts and implementing a daily funding rate mechanism—where longs pay shorts or vice versa depending on the contract’s premium or discount relative to spot price—they managed to create a product that allowed continuous leveraged trading without settlement interruptions.

The early funding rate borrowed from external lending markets like Bitfinex, but as demand grew and the product's usage increased, BitMEX developed a dynamic, internal funding rate model. This model measured the difference between the perpetual swap price and the spot price over an eight-hour period and adjusted payments accordingly. This mechanism incentivized traders to keep the swap price close to spot and created a dynamic equilibrium, which market makers used to anchor the perpetual futures. This funding rate system is now used by virtually every major cryptocurrency derivatives exchange.

By 2017, BitMEX had become the most liquid bitcoin trading platform globally, processing daily volumes of $3-4 billion, with the perpetual swap consolidating liquidity that had previously been fragmented across multiple futures maturities. The swap's success attracted competitors, some of whom copied BitMEX's design with varying degrees of understanding, while others adopted the funding rate model more thoughtfully. Today, perpetual swaps represent one of the most significant financial innovations in crypto trading, reportedly accounting for tens of trillions of dollars in annual turnover.

BitMEX chose not to patent the perpetual swap, focusing instead on building their platform. The product’s influence has grown beyond crypto and attracted attention from traditional financial regulators such as the Commodity Futures Trading Commission (CFTC), which is reportedly adapting its framework to accommodate perpetual swaps. There is also speculation that such products may eventually be listed on more traditional equity markets, highlighting the ongoing impact of a mechanism born from a simple question on a Hong Kong hillside.