BitMEX's Rise and Fall: How Perpetual Contracts Reshaped Crypto Derivatives

Kuan, a hedge fund manager and BitMEX user since November 2017, shared his insights on the exchange's rise and fall. During the ICO mania, he entered the crypto industry with an academic background in financial engineering.

As the market transitioned from ICOs to shorting, BitMEX emerged as a leader due to its deep order books, perpetual contracts, and funding rates that kept contract prices aligned with spot prices. This design helped resolve liquidity issues and expiration rollover problems associated with traditional futures contracts.

Kuan noted that the '3.12' crash and cascading liquidation risks of inverse contracts led to a user exodus due to regulatory pressure, sluggish product iteration, and subpar operational experience. Bybit absorbed BitMEX's user base and shifted toward USDT-margined trading and a 'super-app' model.

Kuan believes the golden era of offshore exchanges has passed, and the industry will move further toward compliance. He also pointed out that perpetual contracts have limitations, particularly in small-cap market manipulation and extreme funding rates, which can lead to risk management issues.