In 2015, the crypto exchange BitMEX launched a product that would reshape digital asset trading: perpetual futures, or perps. Unlike traditional futures contracts that expire on a set date, perpetual futures have no settlement date. Traders can hold positions indefinitely, making them a flexible tool for speculation and hedging.
What makes perpetual futures different
Perpetual futures mimic spot trading but use a funding rate mechanism to keep the contract price aligned with the underlying asset's spot price. Every few hours, traders pay or receive a funding fee depending on whether the contract trades above or below the spot price. This system incentivizes arbitrage and prevents large, persistent price gaps.
BitMEX was the first to implement this design. The exchange offered high leverage, sometimes up to 100x, attracting retail traders seeking amplified returns. The product quickly gained traction among crypto enthusiasts.
Impact on crypto markets
The introduction of perpetual futures brought new liquidity and volatility to crypto markets. Traders could now short or long with ease, without worrying about contract rollovers. The product became a cornerstone of crypto derivatives trading. By 2020, perps accounted for a significant share of total crypto trading volume, though exact figures are not part of this report.
Other exchanges soon followed BitMEX's lead. Binance, Bybit, and FTX (before its collapse) launched their own perpetual futures contracts, often with variations in leverage limits and funding intervals. The product became standard across the industry.
Risks and criticisms
Perpetual futures are not without controversy. High leverage can lead to rapid liquidations, and the funding rate mechanism can be costly for traders who hold positions during periods of high demand. Regulators in several jurisdictions have scrutinized crypto derivatives, including perps, for their potential to amplify market risks. BitMEX itself faced legal challenges from U.S. authorities in 2020 over compliance issues, though those were not directly tied to the product's design.
Legacy of the 2015 launch
Nearly a decade later, perpetual futures remain a dominant force in crypto trading. BitMEX's innovation set a template that the entire industry adopted. While the exchange's market share has declined, its contribution to the ecosystem is undeniable. The product continues to evolve, with some platforms introducing zero-fee perps or different funding models.
What started as a niche offering on a single exchange has become a major part of crypto trading volume. The story of perpetual futures is a reminder of how a simple design change can transform an entire asset class.
