Perpetual Swaps: BitMEX's 2015 Innovation Dominates Crypto Trading
In brief
- Perpetual swaps process $40–50 trillion annually, dwarfing spot trading volumes.
- BitMEX launched perps in May 2015 to eliminate rolling requirements of traditional futures.
- Funding rates exchanged every eight hours anchor perpetual swap prices to spot markets.
- Funding mechanisms are now standard across all major crypto derivatives exchanges.
The Problem Traditional Futures Couldn't Solve
In traditional finance, leveraged exposure typically comes through futures contracts. These agreements to buy or sell an asset at a set price come with a catch: they expire on a specific date. Traders holding positions past expiry must "roll" them into the next contract month, a process that costs money and creates friction.
Ben Delo developed the perpetual swap mechanism to eliminate this problem. BitMEX, founded by Arthur Hayes and Ben Delo in 2014, launched the first perpetual swap in May 2015. The innovation was simple but powerful: remove the expiry date entirely.
How Perps Work
There is no settlement date, no rolling and no expiry. Traders can hold a position for hours or years. But if perpetual swaps have no built-in anchor to reality, how do they stay tethered to the actual price of Bitcoin or Ethereum?
The answer is the funding rate. Every eight hours, a payment is exchanged between traders on opposite sides of the market. When a perpetual swap trades above spot price, indicating excess demand for long positions, traders who are long pay short traders. The payment incentivizes shorts to enter and longs to exit, pulling the perpetual price back toward the spot price.
Most exchanges allow traders to control positions significantly larger than their deposited capital, with limits varying by platform. At BitMEX in its prime, leverage of up to 100 times was available, meaning a 1% move in Bitcoin's price would produce a 100% move in a trader's account.
The Global Standard
The funding rate mechanism is now used, in essentially the same form, by every major derivatives exchange in the world. What BitMEX pioneered over a decade ago has become the foundation of modern crypto trading infrastructure. Perps aren't just another product—they're the product that professional traders, hedge funds, and retail speculators reach for when they want leveraged exposure to crypto assets.
Frequently asked questions
What's the difference between perpetual swaps and traditional futures?
Traditional futures expire on a set date and require rolling to new contracts. Perpetual swaps have no expiry—traders can hold positions indefinitely. Perps use a funding rate mechanism (exchanged every eight hours) to keep prices anchored to spot, while traditional futures are tied to a specific settlement price.
How do funding rates work on perpetual swaps?
Every eight hours, traders on opposite sides exchange a payment based on how much the perpetual price differs from spot price. When perps trade above spot, long traders pay shorts, incentivizing shorts to enter and longs to exit, which pulls the price back into alignment.
Why did BitMEX create perpetual swaps?
Traditional futures required traders to roll positions into new contract months, which was costly and cumbersome. Ben Delo developed perpetual swaps to eliminate expiry dates and rolling requirements entirely, giving traders a cleaner way to maintain leveraged exposure.
