LONG READ: The untold story of how crypto's hottest derivative came to be
Born in the back of a Shanghai taxi in 2015, BitMEX’s perpetual future became crypto’s defining derivative. Now it may hold lessons for rescuing the global dollar system.
In September 2015, wedged into the back of a Shanghai taxi, a young mathematician and his co-founder began to sketch out a strange, expiry-less futures contract to solve a nagging problem on their crypto exchange.
That invention was the perpetual future and has since grown into crypto’s dominant derivative, despite remaining mostly unheard of in traditional financial circles.
In recent weeks, a few observers have begun to notice that the instrument is gaining influence over the evolution of the modern financial system. But the commentary remains narrow and dismissive. Significantly, it fails to frame the tool in the context of three other major structural shifts: the return of scarce-reserve operating regimes in central banking, the demise of unsecured funding as an emergency source of liquidity, and the growing cost of funding the international dollar payments float.
Against that backdrop, the rise of stablecoins has created a new source of fully collateralized, short-term dollar funding. And yet, strikingly, no central authority influences the pricing and settlement of that liquidity at the margin. For now, the system self-clears mostly through funding rates derived from perpetual futures, wherever stablecoins are traded.
Fascinatingly, while it took years of analysis, consultation, and development by a committee of many official bodies for the official system to create a viable successor to the London Interbank Offered Rate (LIBOR), the funding rates derived from perpetual futures — which now clear trillions of dollars of stablecoins daily — emerged entirely organically.
All this comes as an academic debate rages between central bankers over the best way to reduce the role of unsecured Fed Funds in both transmitting monetary policy and pricing marginal liquidity. Fed officials know the old system no longer makes sense. But no one yet agrees on which market rates a new operational framework should be structured on.
And yet, if the history of LIBOR and eurodollar markets is any guide, the true cost of marginal dollar funding is always at the intersection of official and unofficial systems. Since stablecoins are the new “secured” eurodollars, that suggests the most accurate, real-time indicator of systemic funding stress could emerge to be the funding rates that help clear those systems.
The idea that perpetual futures now hold the key to absorbing, pricing, and alleviating liquidity pressures that traditional mechanisms can no longer handle gracefully, however, continues to evade central bankers.
With all these factors in play, it’s worth looking back at how these instruments came to be and the problem they were initially created to solve. Below is that story, told from my unique vantage point covering the crypto industry from its earliest days.
At the center of the narrative is Ben Delo, the finely spoken Oxford-trained mathematician who co-founded the Hong Kong-based BitMEX exchange in 2014 with Arthur Hayes, a straight-talking American from Detroit, and Samuel Reed, another American, albeit the least public-facing of the group. The trio gained international notoriety in 2020 when U.S. authorities charged all three of them with violating the Bank Secrecy Act, a case rooted in BitMEX’s failure to implement adequate anti-money-laundering controls even as it became the premier venue for crypto-derivatives trading. Public attention returned to them again in 2025, when Donald Trump unexpectedly issued them a pardon.
Yet, long before any of those headlines, the trio were simply entrepreneurs trying to fix what traders disliked about crypto futures.
I first crossed paths with one of them in 2017, while reporting for FT Alphaville. At the time, I was covering crypto’s latest craze, Initial Coin Offerings (ICOs), and had been encouraged to chat with Arthur Hayes. My contacts described him as a uniquely market-savvy industry commentator and, most importantly, one who was capable of offering a realistic and pragmatic perspective on market developments.
As ever, when interacting with crypto voices, I was wary. During those years, crypto hype and grifting were rampant, and everyone was pushing an agenda. But Hayes did not disappoint. When we spoke, he offered a refreshingly sober and to-the-point analysis. Unlike many others I routinely spoke with, he seemed well-versed in how financial markets really operated, but also acutely resilient to crypto sensationalism and bullshit.
With respect to ICOs, he cut straight to the point:
“People are willing to spend on something, but they own nothing [in the end]. It’s a promise from a development team which may or may not be useful to people in the market.
“I think it’s interesting that people can raise $10m in minutes based on a dream.”
I didn’t appreciate it at the time, but there was a deeper subtext to Hayes’s comments.
Unbeknownst to me, the BitMEX exchange was at the time experiencing a radical surge in profitability, linked in part to the fast-emerging “blockchain for everything” ICO narrative. Insane amounts of cash were swishing through the crypto ecosystem on the back of whimsical ideas like “Dentacoin”, a token to be used exclusively for dental payments. BitMEX was a clear beneficiary of the mania. Yet for its founders, the windfall must have felt strangely bittersweet.
Just a few years earlier, it had been so much tougher for them to interest investors.
As Ben Delo would later tell me, from 2014 to 2016, they tried repeatedly to raise funding, only to be met with closed doors and unethusiastic reactions.
With no external support, the trio pushed on, pouring their own savings into the business while working out of coffee shops and apartments to keep the BitMEX project alive. Progress was slow, but organic.
Eventually, in September 2015, Ben Delo would have a brainwave that dramatically altered their fortunes. In the course of trying to make leveraged trading more accessible for retail users on their system, he stumbled upon the idea for a novel, expiry-less derivative — the perpetual future. By 2019, the innovation would transform BitMEX into one of the most profitable exchanges in the industry.
It was around the same time that Delo’s idea was propelling the exchange to its zenith— i.e. just before Covid broke — that I found myself embroiled in a very different BitMEX encounter.
A whistleblower from within the company had reached out to me, eager to share allegations of regulatory violations at the exchange. The person claimed the founders were knowingly skirting anti-money laundering regulations to boost profits. Bloomberg had already reported authorities were investigating the firm, the person noted, but there were many more details they had missed that could still be shared with the FT.
The story didn’t go far. Just as I was preparing to dig in, Covid hit and swallowed the news agenda. Adding to the paralysis, the source got cold feet and failed to deliver the evidence I had requested to confirm allegations, out of fear that doing so could jeopardize the wider case being pursued by the U.S. Department of Justice and the CFTC. Before the FT team could pursue things independently, markets were crashing, and the FT was being consumed by its own money-laundering blockbuster, that of Wirecard.
Even so, what stayed with me most about that encounter with the whistleblower was the contradiction at the heart of the person’s account. The individual was intent on exposing alleged wrongdoing at BitMEX. Yet despite it all, they remained unfailingly admiring of the very people they were implicating, going out of their way to praise the firm’s professionalism and, in particular, Ben Delo’s intellect — in particular his role in devising the “perpetual future”.
I was hooked on the concept from that moment on.
