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Japan-listed eole Inc. (TSE Growth: 2334) purchased 1,078.2547 HYPE on July 28 for approximately JPY 10.08 million ($61,600), at an average price of JPY 9,352.78 ($57.10) per token, becoming the first listed company in Japan to purchase HYPE. The company plans to make additional purchases by the end of August, bringing its total investment to JPY 100 million ($610,500), and will hold HYPE as a strategic digital asset under its “Neo Crypto Bank” initiative to support its on-chain finance and Web3 businesses.

BitMEX helped establish perpetual contracts as core crypto market infrastructure through mechanisms such as funding rates, mark prices, insurance funds, liquidation engines, and ADL. The article examines how inverse contracts amplified the March 12, 2020 liquidation cascade and why BitMEX’s outage may have interrupted the cascade and prevented Bitcoin from falling further.
It also explains how regulatory pressure, slow product development, continued reliance on BTC-margined contracts, and a poor operational experience pushed users toward Bybit, which gained market share through USDT-margined products, faster iteration, and a broader “super-app” model. Despite its decline and closure, BitMEX remains one of the most important product innovators in crypto derivatives.

Tether’s GENIUS Act-compliant stablecoin USAT has launched on Celo, marking its second mainnet deployment after Ethereum. Issued by Anchorage Digital Bank, USAT supports native minting and burning on Celo and can be used directly to pay gas fees. Launched in January, USAT currently has a market capitalization of approximately $185 million.

Circle Senior Director of EU Strategy and Policy Patrick Hansen said the EU now has about 35 regulated e-money tokens issued by 21 entities, but only USDC, USDG and EURC among the world’s top 50 stablecoins comply with MiCA. He said the framework’s review should improve competitiveness, strengthen global regulatory coordination and establish a recognition regime for foreign-regulated stablecoins.

K33 Research said Bitcoin market activity remained subdued in July, with average daily spot trading volume at about $2.2 billion, potentially marking the lowest monthly average since November 2023. BTC fell around 3% over the past week and remained range-bound between $60k and $66k, while CME Bitcoin futures open interest stayed near multi-year lows and perpetual futures open interest stood at roughly 300k BTC.

In this episode of the WuBlockchain podcast, we speak with hedge fund manager Kuan, looking back at the journey of the crypto exchange BitMEX from an industry pioneer to its closure. Combining financial engineering with practical trading experience, Kuan analyzes how BitMEX — through perpetual contracts, funding rates, mark prices, insurance funds, and auto-deleveraging (ADL) mechanisms — resolved the fragmented liquidity and expiration rollover issues of traditional futures contracts, becoming a crucial price discovery market during the bear market.
The conversation also covers the “3.12” crash, the cascading liquidation risks of inverse contracts, and the reasons behind BitMEX’s user exodus, which included regulatory pressure, sluggish product iteration, and a subpar operational experience. As platforms like Bybit absorbed its user base and shifted toward USDT-margined trading and a “super-app” model, BitMEX’s product advantages gradually faded away.
Kuan believes that the golden era of offshore exchanges thriving on regulatory arbitrage has passed, and the industry will move further toward compliance. Additionally, he notes that there is still room for improvement in perpetual contracts when it comes to small-cap market manipulation, extreme funding rates, and risk management.
The guest’s statements do not represent the views of WuBlockchain and do not constitute any investment advice. Please strictly comply with local laws and regulations. The audio transcription was completed by AI and may contain errors.
Please listen to the full podcast here:
YouTube：
https://youtu.be/jyosC-quWEo
From the ICO Mania to the BitMEX Era
Mao Di: When did you enter the crypto industry? Were you already using BitMEX at the time?
Kuan: I entered the crypto industry in November 2017, at the height of the ICO mania. Investors could buy newly issued tokens and see them listed for trading shortly afterward, creating a powerful wealth effect across the market. My academic background is in financial engineering, and my doctoral research focused on complex derivatives such as options and swaps, as well as their hedging strategies. I later worked with exchanges and project teams on risk management and derivatives design.
When I first entered the industry, ICOs presented the biggest opportunities, while BitMEX had yet to attract much attention. By April or May 2018, however, the crypto market had entered a bear market. Simply going long was no longer effective, so traders began looking for ways to short the market. At the same time, a series of negative incidents at other platforms weakened user trust, helping BitMEX gain popularity among professional traders in China.
Bitcoin fell from nearly $20,000 to around $3,000-$4,000, making shorting one of the few viable ways to generate returns. BitMEX had a clear advantage: its order book depth frequently reached millions of dollars, while many competing platforms offered only thousands or tens of thousands of dollars in depth. It was well ahead of the market in both liquidity and product experience. Relatively mature competitors did not begin to emerge until late 2019.
How Perpetual Contracts Reshaped Crypto Derivatives
Mao Di: What specific problems did BitMEX’s perpetual contracts solve? Before they emerged, how did traders go long, go short, and use leverage?
Kuan: Going long was relatively straightforward: traders could simply buy the spot asset. Going short, however, required borrowing Bitcoin, selling it, and then buying it back later to repay the loan. Leveraged trading also involved borrowing costs, and the available leverage was usually limited. When spot market depth was insufficient, slippage and transaction costs could be extremely high.
Another option was fixed-expiry futures, but contracts with different expiration dates fragmented liquidity. Long-term holders also had to close their positions when a contract expired and reopen them in the next contract. For large participants such as miners who needed continuous hedging, this created significant transaction costs.
Perpetual contracts have no expiration date, allowing liquidity to be concentrated in a single market. Funding rates help keep contract prices aligned with spot prices and prevent the two from diverging for extended periods. BitMEX also introduced mechanisms such as mark prices, a liquidation engine, an insurance fund, and auto-deleveraging, or ADL. These mechanisms have since become standard industry infrastructure, but they were highly complex to design and implement at the time.
Perpetual contracts did not emerge from nothing. The concept of a “perpetual swap” already existed in traditional finance, although it never became a mainstream product. BitMEX’s most important contribution was adapting the concept to the crypto market and building a complete, functional system around it.
Mao Di: Why did perpetual contracts become more popular than fixed-expiry futures?
Kuan: Fixed-expiry futures can trade significantly above or below spot prices for extended periods and only converge with spot prices as expiration approaches. Even when investors correctly predict the direction of the market, they can still lose money because of changes in the basis. Perpetual contracts use funding rates to continuously adjust prices, making the trading experience more intuitive.
The absence of an expiration date also means that users do not need to repeatedly roll over their positions, which makes perpetual contracts particularly suitable for long-term hedging. Concentrating all traders in a single contract also improves market depth. BitMEX further concentrated liquidity through design details such as smaller tick sizes.
Is the Legacy Funding Rate Outdated?
Mao Di: Many exchanges still use a baseline funding rate of 0.01% every eight hours. This parameter was based on BitMEX’s early estimates of USD and Bitcoin borrowing costs, but the market has since shifted toward USDT-margined contracts. Has it become outdated?
Kuan: That is a reasonable assessment. The parameter reflected borrowing costs at the time, but the interest-rate environment has changed considerably, so it may no longer be appropriate. BitMEX later discussed this issue in an official article. When other platforms copied its perpetual contract model, they inherited both the reasonable and less reasonable elements of the original design.
That does not mean exchanges have made no adjustments. Some markets have shortened funding intervals to four hours or one hour, while funding-rate caps and floors also vary across low-liquidity altcoins. Nevertheless, the limitations of perpetual contracts are becoming increasingly apparent in these markets.
Some low-float tokens experience sustained price increases and short squeezes. Short sellers not only face rising prices but may also be required to pay extremely high funding rates every hour. Even when a token eventually declines, short sellers may be forced out beforehand by funding costs or liquidation.
This runs counter to the original purpose of derivatives, which is to support price discovery and risk hedging. An investor might, for example, short a token in advance to hedge against an upcoming token unlock, only to be liquidated because of extreme funding rates and price manipulation. Fixed-expiry futures also carry risks, but because they do not impose recurring funding payments, manipulators must keep pushing prices higher to force short sellers out.
Exchanges currently rely on methods such as linked-account analysis and IP monitoring to manage these risks, but it is extremely difficult to draw a clear line between legitimate trading and market manipulation. The fundamental issue is that not every low-liquidity token is suitable for a derivatives market. In its early years, BitMEX only offered contracts on a small number of major assets, which demonstrated a certain degree of restraint.
Trading and Position Management on BitMEX
Mao Di: What did you primarily trade on BitMEX at the time? How much leverage did you normally use?
Kuan: We mainly traded Bitcoin to hedge other positions rather than speculate on a single direction. We generally kept leverage between 3x and 5x and never exceeded 10x, while continuously monitoring margin levels and risk exposure.
At one point, our accumulated hedging positions placed us on the BitMEX profit leaderboard. That did not mean we were profitable overall, however, because there were corresponding losses on the other side of the hedge. The leaderboard was more of a gamified feature designed to attract traders and stimulate competition.
Did the March 12 Outage Halt the Crash?
Mao Di: During the March 12, 2020 market crash, BitMEX went offline for a period. Some people believe the platform intentionally “pulled the plug,” while others argue that the outage prevented Bitcoin from falling further. What is your view?
Kuan: We were trading through the API throughout that period. Under normal conditions, BitMEX’s server stability and API performance were generally excellent. However, it was also the most active market at the time, and the volume of concurrent orders and API requests surged during extreme market conditions.
Objectively, the outage interrupted the cascade of liquidations, and Bitcoin stabilized at around $3,800. Had the system continued operating, the price might have fallen further. Whether the outage was intentional, however, is something only those directly involved would know. Outsiders cannot prove it.
The sharp, liquidation-driven decline on March 12 was also connected to the inverse contracts that dominated BitMEX at the time. BitMEX was a major price-discovery market, and other platforms followed its price movements. During a downturn, inverse contracts are particularly unfavorable to long positions.
Mao Di: Why do inverse contracts tend to intensify liquidations?
Kuan: Inverse contracts use Bitcoin as collateral. When Bitcoin falls, long positions face three pressures at once: losses on the position itself, a decline in the value of the collateral, and those losses accounting for an increasingly large share of the remaining collateral. This nonlinear structure can easily trigger cascading liquidations.
USDT-margined linear contracts do not create the same threefold pressure. In fact, as Bitcoin’s price falls, the same amount of dollar-denominated capital can absorb a larger quantity of Bitcoin. After the industry shifted toward USDT-margined contracts, this type of downward feedback loop became less severe.
Mao Di: Did you suffer losses at the time?
Kuan: Our overall portfolio was hedged with both long and short positions. During the extreme decline, the losing side was liquidated, effectively acting as a forced stop-loss, while the profitable side continued generating gains. As a result, the portfolio was profitable overall.
ADL then reduced our profitable positions, however, significantly lowering our actual returns.
This was not the result of correctly predicting the market in advance. It was simply the outcome produced by our hedging structure under extreme conditions. The March 12 crash also demonstrated that even a directionally neutral strategy remains exposed to liquidation mechanisms, system-capacity constraints, and ADL.
Why BitMEX Lost Its Market Share
Mao Di: After US regulators took action against BitMEX, its market share continued to decline. Was regulation the main reason, or did its products also fail to keep pace with the market?
Kuan: Regulation was a major factor. At the time, BitMEX did not require KYC, but it strictly restricted access from certain regions based on IP addresses. Once the system determined that an account came from a restricted region, it would immediately place the account in reduce-only and withdrawal-only mode, with almost no opportunity to appeal.
For professional traders, this meant closing positions, transferring funds, and rebuilding those positions on another platform. The process involved trading fees, slippage, and market-impact costs. By late 2019, it had become increasingly difficult for us to continue using BitMEX, so we had to look for alternatives.
The operational experience was another problem. In its early years, BitMEX processed withdrawals only once a day in batches, making it difficult to move additional margin onto the platform at short notice. It also lacked customer support, user campaigns, and tiered fee structures, making it feel more like a professional trading tool than a full-service exchange.
Meanwhile, perpetual contracts gradually became commoditized. Once other platforms could offer the same product with lower fees and better services, liquidity began to migrate. Trading markets have strong network effects: the more users a platform attracts, the deeper its liquidity becomes, which in turn attracts even more users.
Mao Di: Was slow product development also a factor?
Kuan: Yes. Even after the industry shifted toward USDT-margined contracts, BitMEX continued relying heavily on BTC-margined inverse contracts. Many retail traders did not already hold Bitcoin, so they had to acquire BTC and transfer it to the platform before they could trade. The Bitcoin network’s relatively high costs and slow settlement times also weakened the user experience.
Inverse contracts made sense in the early years. At the time, USDT’s credibility and supporting infrastructure were still immature, while using US dollars or dollar-equivalent assets as collateral could have created more direct regulatory exposure. BitMEX was capable of designing linear contracts, but as an early mover, it had to operate within the constraints of that period.
Once stablecoins matured and market preferences changed, however, continuing to rely on inverse contracts became a burden. BitMEX failed to complete the transition in time, allowing newer rivals to gradually erode and eventually overtake its product advantages.
How Bybit Absorbed the “BitMEX Refugees”
Mao Di: You later moved to Bybit. How did it replicate and ultimately surpass BitMEX?
Kuan: At the time, many users affected by BitMEX’s regional restrictions referred to themselves as “BitMEX refugees.” Bybit entered the market at precisely the right moment. Its early products and API closely resembled those of BitMEX, which kept migration costs low for professional traders.
Bybit had fewer users at the time, which also meant that its systems were less likely to become congested during extreme market conditions. Its liquidity was relatively strong and, at one point, noticeably better than that of several other major platforms.
The team also had experience operating foreign-exchange platforms, so it placed greater emphasis on affiliates, customer service, and community management. Fee rates could also be adjusted according to individual user profiles.
More importantly, Bybit iterated more quickly. In its early days, it even copied BitMEX’s scheduled withdrawal mechanism, but it changed the system soon after recognizing the problems it created for users. It later introduced USDT-margined contracts, spot trading, earn products, and various user-acquisition and promotional campaigns, gradually transforming from a derivatives-only platform into a full-service exchange.
Eventually, most exchanges moved toward a “super-app” model, combining spot trading, derivatives, earn products, and other services on a single platform. BitMEX maintained its position as a specialized professional tool, while newer platforms attracted its users with broader products and stronger operations.
Why BitMEX Found No Buyers
Mao Di: BitMEX said it had explored a sale but was unable to find a buyer. Why do you think no deal was reached?
Kuan: When acquiring an exchange, buyers generally consider its users, liquidity, licenses, and technological moats. BitMEX had already lost a substantial share of its users and trading volume, while perpetual contracts had long since been replicated across the industry. Its original competitive moat had largely disappeared.
The platform still had brand recognition and historical significance, but crypto traders tend to have limited loyalty to individual platforms. When another exchange offers lower fees, higher returns, and a comparable level of trust, capital can move very quickly.
BitMEX’s founding team had also stepped away from daily operations, while the platform continued to carry historical regulatory risks and other liabilities. A potential buyer would have found it difficult to determine how many users and how much revenue could be retained after an acquisition.
The failure to reach a deal may also have reflected a difference in valuation. The sellers may have placed greater value on BitMEX’s historical importance, while potential buyers focused on future cash flow. That gap would have made it difficult for the two sides to agree on a price.
How Should BitMEX’s Historical Role Be Evaluated?
Mao Di: Overall, your assessment of BitMEX appears relatively positive. Were you surprised by its closure?
Kuan: As a financial engineering practitioner, I give BitMEX considerable credit. It delivered meaningful product innovation and bore the costs of educating the early market and developing new mechanisms. Much of the infrastructure used by the industry today was built on the path it helped establish.
Perpetual contracts themselves are neutral tools. High leverage certainly increases liquidation risk, and the use of 100x leverage to attract users is something exchanges should reflect on. However, even without perpetual contracts, leveraged spot trading and fixed-expiry futures can also result in substantial losses.
The timing of BitMEX’s closure was somewhat surprising to me, but its long-term decline was not. Once exchanges entered the “super-app” race, it became difficult for smaller platforms to regain relevance through a single product innovation, particularly when successful features could be quickly replicated by larger competitors.
BitMEX had already lost users, liquidity, and differentiation, leaving it with few obvious avenues for renewed growth.
Even so, the period from 2018 to 2020 can still be described as the “BitMEX Era.” Its influence on the structure of crypto trading and on many industry participants should not be overlooked simply because the platform later declined.
The End of the Golden Era for Offshore Exchanges
Mao Di: How will derivatives exchanges develop in the future? Have offshore exchanges already reached their ceiling?
Kuan: The crypto market was once particularly well suited to financial innovation. In traditional finance, launching a new derivatives product requires navigating complex compliance procedures. After the 2008 financial crisis, regulators also became much more cautious about innovations in financial engineering.
The crypto market previously operated under fewer restrictions. As long as a product functioned and attracted users, it could be launched quickly.
Crypto assets also trade continuously, 24 hours a day, seven days a week. They are therefore less exposed to the large opening gaps caused by weekend or holiday market closures, making them particularly suitable for derivatives trading.
The regulatory environment has now changed. Major exchanges increasingly prioritize obtaining licenses in different jurisdictions, and greater regulatory compliance has become an industry-wide trend. The era in which offshore exchanges could thrive on regulatory arbitrage is coming to an end.
The industry will become more compliant and move away from the largely unconstrained “Wild West” environment of its early years.
This will reduce certain risks, but it will also require new products to develop under tighter constraints. Innovation will continue, but companies will no longer be able to experiment as freely as they did in the industry’s early years.
Can BitMEX’s Innovation Be Compared With Uniswap?
Mao Di: What place should BitMEX occupy in the history of the crypto industry?
Kuan: BitMEX represents a rare example of product-level innovation. Other exchanges introduced platform tokens, IEOs, trading-fee discounts, and blockchain ecosystems, but these were primarily innovations in operations or business models.
BitMEX, by contrast, transformed a complex derivatives concept into foundational market infrastructure adopted at scale.
In my view, this level of innovation can be compared with Uniswap. Both changed the foundational structure of the industry, although they did so in different ways. BitMEX’s subsequent loss of market share does not erase the contribution it made at the time.
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