BTC Current Affairs Security

The Hong Kong Hike That Broke Markets

2026-07-29

Ben Delo was wrestling with something that threatened to wreck his exchange's entire business. BitMEX had launched dozens of futures contracts—quarterly, monthly, weekly, even 24-hour instruments—and traders loathed them all. Every expiry forced position closures, fragmented liquidity, confused customers. On May 13, 2016, BitMEX listed XBTUSD, the first perpetual swap. But that didn't start on a trading floor. It started on a hiking trail in Hong Kong.

Months before the May launch, Delo and a derivatives trader named Bavik were walking that hillside discussing an elegant problem: how do you build a futures contract that never expires?

The real issue wasn't mechanical. It was psychological. Traders wanted a leveraged product that behaved like spot markets—always there, never expiring, liquid as hell. Futures derive value partly from time decay. Remove the expiry, and theoretically the value goes infinite. Bavik's insight was deceptively simple: just charge an overnight interest rate. The way traditional finance charged LIBOR. A periodic payment between longs and shorts would anchor the contract price to spot by making divergence costly and alignment profitable. The perpetual swap was first formalized by economist Robert Shiller in 1993, but for decades it stayed theoretical. BitMEX turned theory into practice.

Early funding rates borrowed from external lending markets—mainly Bitfinex, where traders could borrow dollars or lend Bitcoin. That worked until Bitcoin's 2016-2017 rally overwhelmed it. As demand for long exposure exploded, the contract began trading at a persistent premium to spot. The fix was dynamic recalibration. Instead of looking outward, BitMEX measured how far the contract traded above or below spot over an eight-hour window, then back-calculated an annualized rate. That rate would be charged at the end of the next window. Market makers knew exactly how it would be calculated and when they'd pay. That knowledge created a powerful incentive to short overpriced perps and anchor them back to spot.

The market impact was immediate and transformative. Despite Huobi and OKX controlling over 90% of average daily volume in crypto futures at the time, it took just two years for BitMEX to emerge as the dominant exchange. By 2018, BitMEX had largely phased out its dated futures offerings and led all crypto exchanges in both liquidity and volume. Consolidating all liquidity into a single, never-expiring contract eliminated the thin spreads and fragmentation that had plagued earlier designs.

Nearly a decade later, the product has become ubiquitous. Perpetual swaps have accounted for 75% of total trading volume on centralized exchanges since 2025, with turnover of nearly $49 trillion, far exceeding spot trading at $14.8 trillion and options trading at $1.3 trillion. Every major exchange—Binance, Bybit, OKX, Hyperliquid, dYdX—has deployed its own version, each built on the funding rate architecture Delo pioneered.

The product's reach now extends beyond crypto. Trading in tokenized versions of traditional assets surged in the first quarter, with perpetual swaps tied to commodities and equities drawing billions in weekly volume and bringing 24/7 activity to wider markets. The 2026 perpetual CFD launch extended the model further, replacing the expiry-and-roll mechanics of conventional CFDs with continuous, no-expiry instruments.

BitMEX chose not to patent the innovation. Perpetual swaps are now the primary venue for price discovery in crypto. When Bitcoin moves sharply, the move typically originates in perp markets before spreading to spot. That decision to open-source a financial innovation turned out right—the market itself validated its worth. Regulators are beginning to take notice. Since their introduction in 2016, perpetual futures have accumulated over $90 trillion in trading volume and now account for 93% of the cryptocurrency futures markets.

What began as a question asked on a hillside above Hong Kong has reshaped how financial markets work across traditional finance as well. Sometimes the best innovations come not from complex mathematical models, but from listening to what customers actually need and building the simplest possible mechanism to deliver it.

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