Boros: Funding Rate Futures on Pendle

Background on Pendle

Pendle is a yield tokenization platform that enables the trading, farming, and liquidity provision of tokenized yield assets. By separating principal from yield, by making them two separate financial instruments, Pendle effectively brought the traditional interest rate derivatives market into DeFi, giving users new ways to unlock liquidity and manage assets.

Originally built on Ethereum, Pendle has since expanded across multiple chains, including non-EVM ecosystems. The core innovation is yield stripping: splitting interest-bearing tokens into principal tokens (PTs, the base asset) and yield tokens (YTs, the future rewards generated).

This architecture offers unique opportunities, such as buying PTs to lock in fixed yield, or buying YTs to speculate on future yield and farm incentives.

Initially, many doubted whether DeFi needed such structured products. Yield trading is a cornerstone of TradFi, but on-chain yield has to contend with volatility, AMM mechanics, and fluctuating rewards. Pendle nonetheless proved the skeptics wrong, capturing over 90% market share in its niche, building deep integrations, and achieving rapid TVL growth.

Since emerging from an overlooked side project in 2021 into today’s 8.5 billion dollars protocol, Pendle has been at the center of a growing conviction: traditional finance concepts can be meaningfully re-imagined on-chain.

With perpetual futures now processing $150–$200 billion in daily volume, and with Pendle’s success, the idea of tokenized funding rates (similar to TradFi’s interest rate swaps) being the next big breakthrough is widespread.

And precisely, Pendle V4 introduced dynamic fees for yield trading and governance improvements through vePENDLE, but these updates pale in comparison to Boros: Pendle’s new platform for trading funding rates.

→ Find our complete presentation of Pendle (PENDLE):

Pendle (PENDLE): A comprehensive overview of the leading platform for on-chain yield

Pendle (PENDLE) has become one of the leading DeFi protocols, thanks to its radical value proposition: enabling speculation on the yield of an asset. In this report, we offer a comprehensive overview of Pendle, how it works, its use cases, and its flagship products.

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Reminder on Funding Rate

Boros is built on the premise that funding rates themselves can be tokenized and traded, similar to TradFi’s interest rate swaps. Given that to understand Boros, one needs to understand funding rates, it is important to explain what funding rates are.

Funding rates are fees exchanged periodically between traders who are long (buyers) and those who are short (sellers) in a perpetual futures market. The funding rate can be either positive or negative, depending on the relationship between the perpetual contract price and the spot price.

Funding rates are the cost of holding positions: if the perp trades above spot, then funding rate is positive and longs positions pay a funding fee to short positions, and vice versa.

Funding rates vary based on the asset and the platform, but they are typically calculated using two components:

• Interest Rate: This is a fixed percentage set by the exchange and usually remains constant.
• Premium Index: The premium index is the difference between the futures price and the spot price of the asset. When the futures price is above the spot price, the premium index is positive, and when below, it’s negative.

The funding rate formula: Funding Rate = Premium Index + Interest Rate

For example, if the interest rate is 0.01% and the premium index is 0.02%, the funding rate equals 0.03%.

The reason funding rates exist is that unlike futures contracts, perpetual contracts have no expiry. Therefore, funding ensures perps remain aligned with spot by incentivizing traders to take the opposite side to receive the funding fees and this eventually brings the price back to the underlying spot price.

→ To learn more about on-chain leverage, its history, and how it works, check out our analysis:

Yet funding rates can also create serious problems for traders: loss, decrease in profits, or liquidation from accumulated fees, especially if the rates remain positive or negative for an extended period, and a trader is operating against them.

Delta-neutral strategies also face challenges. Ethena, for instance, hedges BTC LSTs and ETH spot against perpetual shorts. Positive funding generates income from shorts, but negative rates can undermine the strategy.

Boros gives traders direct tools to speculate on or hedge funding rate exposure, transforming it into a tradable market.

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What is Boros?

Boros expands Pendle’s ecosystem of on-chain yield management into funding rate trading. Launched on Arbitrum on August 5, 2025, the platform can support yield from different verticals such as DeFi, bonds, equities, and RWAs.

In the initial phase, it focuses on funding rate, enabling users to speculate on and hedge the yield on funding rates, starting with the BTC and ETH markets on Binance, subsequently on Hyperliquid, and across major exchanges (on-chain and off-chain).

Boros enables traders to either hedge their funding rate exposure or trade funding rates as  futures by shorting or longing Yield Units (YU). YU represents the yield from 1 unit of the collateral asset (e.g., 1 YU-ETH = Yield from 1 ETH notional value) until maturity.

Boros consists of three main components:

• Funding Rate Accounting, which is how Boros sources the underlying yield or core yield rate of an asset via an oracle.
• Funding Rate Trading (YU trading) allows for the trading of interest or funding rates.
• Margin, Liquidations and Risk Parameters are essential when engaging with Boros. Trades on Boros can be executed with leverage, with risks of liquidations from funding rate swings and, indirectly, price volatility.

As a yield-trading platform, Boros adopted the Chainlink data standard for obtaining the yield of a given asset and as long as there is an oracle feed for a yield percentage, the asset can be supported on Boros.

Boros also allows for cross-margin with the same assets (across multiple positions with a single token) as well as isolated margin (for a single position only).

The Collateral and Notional size are denoted in the same asset. For example, in the BTCUSDT-Binance market on Boros, each YU-BTCUSDT-Binance represents yield from funding rates of 1 BTC and the collateral required to back the position is in BTC.

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How Boros Works?

Yield Unit

Boros turns funding rates into Yield Units (YUs). Each YU represents the yield generated by the funding rate of a perpetual future for a single token (for example, 1 BTC) until maturity. Its price is computed based on the implied yield of the instrument.

For example, to get exposure to the funding rate of 100 BTC/USD on Hyperliquid, one could either:

• Open a 100 BTC/USD long on Hyperliquid.
• Purchase 100 YUs of BTC/USD [Hyperliquid] on Boros.

Because YUs only represent the funding component, they cost a fraction of a corresponding perp position, making them capital‑efficient.

Implied Yield or APY

This is the value of funding rates or YU, on Boros. When a trade is opened, the implied yield at entry is locked for as long as the position remains open and the price is determined by market demand.

Underlying Yield or APR

The annualized APR of the funding rates essentially represents what traders pay or receive when going long or short on the perp. This is obtained by Boros through the Chainlink oracle that tracks the corresponding market (e.g., BTCUSDT on Binance). For example:

• If the current Binance BTCUSDT perpetual funding rate is 0.01%, and it is settled every 8 hours.
• The underlying APR is 0.01% * 3 * 365 = 10.95%.

When trading on Boros, what matters is whether the underlying APR is higher or lower than the implied APR. If it is higher, long positions profit. If it is lower, short positions profit. As maturity approaches, the implied APR converges toward the underlying APR.

Long or Short Rates

When traders long funding rates, they pay a fixed rate in order to receive the yield represented by the Underlying Yield. Here the traders believe the underlying yield will surpass the fixed rate they paid for, or the Implied Yield itself will increase, so that the YU price rises.

In a short YU position, the opposite is true. The trader receives the Implied Yield as a fixed APR while buying the Underlying Yield.

Order Book

Orders on Boros are placed on Implied APR of the asset, which is the yield-denominated price of the asset.

Similar to CLOBs:

• Market: Order executes immediately in order of the best prices in the order book.
• Limit: Order executes at the selected limit price or better.

Limit orders on Pendle are Good Til Cancel (GTC) orders, which means they will be available in the order book until they are filled or cancelled.

Vaults

Boros vaults are designed to mirror Uniswap V2 Liquidity Providers’ (LP) positions of “long YU” and “collateral.”

This means that unlike Uniswap LPs who deposit token A and token B, Boros vault depositors are effectively taking a long-biased position on YU with $WETH or $WBTC, which benefits from high or rising implied APRs.

However, they still risk suffering impermanent loss (IL) if the implied rate falls, which can explain the $PENDLE incentives. Each YU pair on Boros has a corresponding vault, which provides an additional source of liquidity on top of the order book. When a trader places a market order, it can be matched with either the order book or the vault, making the vault a counterparty to open positions while earning fees and PENDLE incentives.

With the introduction of other markets, we should expect these vaults to increase in number, providing a wider range of yield opportunities for farmers.

Fees

There are three sources of fees on Boros:

• Swap Fees: Boros charges a flat fee on top of the implied APR for every swap. Deducted directly from the position's collateral, it is designed to capture value both when entering and exiting a position. There are different fee tiers for each market, so the fee depends on the market you are trading on.
• Open Interest Fees: A flat 0.2% fee applied to the fixed APR side of every YU during each settlement.

For example, pools with an 8% fixed rate: Long YU positions effectively pay 8.2% in fixed APR / Short YU positions effectively receive 7.8% in fixed APR.

• Operation Fees: Boros charges a small fixed fee (around $1 in normal gas conditions) on the first transaction and approximately every 50 transactions thereafter.

Understanding Settlement and Maturity

Boros is designed to trade YUs of funding rates, with settlement occurring at fixed intervals and mirroring the underlying market’s schedule. Which implies that as settlement is every hour on Hyperliquid and every 8 hours on Binance, Hyperliquid YUs and Binance YUs on Boros will be settled hourly and every 8 hours, respectively.

At each settlement, Boros queries for the current yield rate (APR) on the underlying market and the difference is prorated to the settlement period and applied directly to the user's collateral.

In a nutshell, Boros settles the underlying rate against every user’s fixed rate. This means different things depending on the users’ exposure.

• For a long YU: If underlying > fixed, then collateral grows; else collateral decreases.
• For a short YU: If underlying < fixed, collateral grows; else, decline in their collateral value.

Assuming the implied APR remains the same, the position’s value declines as a portion of the position is already realized into the collateral (i.e., YU’s value declines as there is less yield remaining to settle until maturity). This mirrors time decay in options, as the YU’s value approaches zero at maturity when all yield is realized.

The Maintenance Margin, which starts at 50% of the initial margin (set when a position is opened), also declines as the position’s value drops. Since the value of each YU is now lower after settlement, less margin is now required to maintain the same position. Declining maintenance margin reduces liquidation risk over time and maintenance margin gradually declines until the margin floor.

As maturity approaches, the Implied APR converges toward the Underlying APR due to the periodic settlement of yields. This lowers the effective value of the position and consequently the required margin as the maturity date nears. At maturity, the total position value is zero, as the whole position is already realized and the collateral is fully freed.

Global Deleveraging in Boros

Global deleveraging is an emergency mechanism to prevent the platform from accruing bad debt, which in turn can threaten the protocol’s solvency. It helps manage overall protocol risk during extreme events where a user’s collateral cannot cover liquidation losses.

As a last resort, it automatically closes profitable or highly leveraged positions on the opposite side of the liquidated trades, ranked by unrealized P&L and leverage used. These positions are closed at the current implied APR against the liquidated user, ensuring the platform does not accrue bad debt.

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The Potentials Presented by Boros

Boros provides a distinct way for traders to interact with funding rates. If you are bullish on funding, you can go long. If you are bearish, you can go short. It also enables users with floating funding‑rate exposure to hedge their payments or receivables.

Speculation and YU Trading

Just as price is driven by net buying and selling, funding rates are largely determined by the net demand of longs and shorts. Boros turns this into a tradeable instrument that is independent of price direction. Risk‑seeking traders can speculate or hedge funding rates with up to 1.4x leverage.

For example, in a 10‑day window, ETH might rise by 21%, while funding rates climb by 139%. If you are bullish on ETH, you can choose between chasing the 21% move or targeting a 139% funding‑rate move.

Beyond Retail: Hedging

Protocols like Ethena, which currently allocate a large share of collateral to CEXs for BTC and ETH (the assets initially supported by Boros) and manage deposits over $4 billion, can reduce risk with fixed funding rates so adverse swings are hedged.

With Boros, the straightforward approach is to hedge by taking the inverse YU position (short YUs), especially when rates are high, limiting the risk of further increases. When rates fall, long and short funding exposures offset each other, leaving a fixed effective rate.

As a new platform being built to stand alongside Pendle V2, Hedging only works if the YU order book is liquid enough not to introduce slippage or risk of blowouts.

To limit early reflexivity, Boros initially capped open interest at 1.2x and $10 million notional per market. As liquidity has grown on ETHUSDT‑BINANCE (vault size roughly $125,000–$180,000), these parameters have been reevaluated. Current guidance is open interest in the $20–$30 million range and up to 1.4x maximum leverage.

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Conclusion

Boros is an important addition to Pendle’s yield toolkit and a practical introduction of interest rate swaps to DeFi, creating a new financial primitive.

There are many comparisons to Pendle v2. While the principle behind YTs could be applied to YUs, there are notable differences. Boros behaves more like a perp rate prediction market. Unlike Pendle’s yields from yield‑bearing tokens, Boros involves “a spectrum of complexity”, such as a broader range of market dynamics, trader positioning, and market structure.

Additionally, while Pendle v2 has done an excellent job at capturing TVL, it’s difficult for its design to scale properly beyond what exists on-chain. Pendle lives vicariously through Boros to remove this limitation and obtain off-chain yield.

Yes, it is all Yield. Boros has shown that any stream of yield can now become both a trading instrument and first-class collateral. It starts with funding rates but has the potential for this new funding-rate derivatives layer to be integrated into many other  financial ecosystems, with bonds, equities, and ultimately real-world assets (RWAs).