Boros: Pendle's new toy, Ethena's yield stabilizer

Today, I want to talk to you about a very interesting new tool — the Boros platform launched by Pendle on August 6, 2025. This is a brand new on-chain protocol specifically designed to convert the funding rates of perpetual futures into tradable yield instruments.

???? Introduction to the funding rate mechanism

First, let's understand the pain point that this tool aims to solve: The funding rate of Perptual Futures is too unstable.

Let me explain what Perptual Futures are to friends who are not very familiar with it. Simply put, a Perptual Futures is a type of futures contract that has no expiration date, allowing you to hold it indefinitely. This creates a problem: the expiration date mechanism of conventional futures allows the futures spot prices to converge, but since Perptual Futures lack an expiration date, they lose the means to anchor futures prices to spot prices. To prevent the contract price from deviating too far from the spot price, exchanges have designed a "funding rate" mechanism.

In simple terms, the funding rate mechanism is designed to increase the holding costs for the profitable party, thereby encouraging the profitable party to close their positions in a timely manner. This mechanism works as follows:

• When the price of Perptual Futures is higher than the spot price (bulls are stronger than bears), bulls have to pay the funding rate to bears. This increases the holding cost for bulls, thereby forcing them to close their positions and encouraging bears to open positions, resulting in a downward turn in the price of Perptual Futures, converging towards the spot price.
• Conversely, when the Perptual Futures price is below the spot price (bearish stronger than bullish), the bears must pay the bulls the funding rate. This will cause the Perptual Futures price to turn upwards and converge towards the spot price.

In this way, the Funding Rate mechanism can achieve the goal of "keeping the contract price fluctuating around the spot price without deviating too much."

Currently, the daily trading volume of Perptual Futures reaches hundreds of billions of dollars! According to statistics, the annualized funding rate of BTC and ETH Perptual Futures averages between 7.8% and 9%. Doing the math, it is clear that the funds flowing through the funding rate reach millions of dollars daily.

Pain Point: The volatility is too high.

But there is a big problem here - the funding rate fluctuates greatly. For example, the funding rate of ETH Perptual Futures is positive most of the time (longs pay shorts), but during periods of market volatility, it has also dropped into negative territory (shorts pay longs).

This volatility brings significant uncertainty to both traders and protocols. For example, Ethena's USDe is a well-known yield-bearing stablecoin, and its primary source of yield comes from Ethena obtaining funding rate income through shorting Perptual Futures, and then distributing the income to USDe holders. However, once the funding rate turns negative, Ethena, as the short position, will have to pay out, and the original income channel turns into a holding cost instead.

To address this risk, Ethena had to:

• Established an insurance fund of over $39 million as "reserve ammunition" for external payments when the funding rate turns negative.
• Incentivize users not to stake USDe as sUSDe by distributing ENA tokens, thereby giving up their rights to收益权, allowing some profits to remain in the insurance fund, and thickening their "safety cushion".

It can be seen that the drastic fluctuations in the funding rate have added a lot of burden and complexity to DeFi protocols.

????️ BOROS: Turn the FUNDING RATE into a tradable asset.

To address this pain point, Pendle has launched the Boros module on Arbitrum. The core innovation of Boros is the introduction of the concept of "Yield Units" (abbreviated as YU).

In simple terms, YU is a tradable asset that packages the future funding rate income for a certain period. For example: 5 YU-ETHUSDT-Binance represents the funding rate rights for an ETHUSDT Perptual Futures contract with a position size of 5 ETH on Binance over a certain period. Note that Perptual Futures do not have an expiration date, but YU does have an expiration date. Upon expiration, all income settlements are completed, and the value of YU naturally becomes zero.

Two interest rates

Trading YU involves two key concepts:

• Implied APR: This is the price set by the market for YU, reflecting the market's average expectation of the future funding rate. When you trade YU, the Implied APR at the time of the transaction is equivalent to locking in a fixed interest rate. Depending on the direction of the trade, this locked fixed rate Implied APR may be a cost you incur or an income you receive.
• Underlying APR: This is the actual funding rate yield generated by the underlying asset (Perptual Futures on Binance or Hyperliquid), which will fluctuate with market volatility.

The core logic of trading YU on Boros is that each trader, based on their prediction of the future funding rate trend in the market, locks in the implied APR at the time of opening a position to exchange it for the fluctuating underlying APR over a period of time.

Long Rate VS Short Rate

The key to trading YU lies in comparing the market's expectations of the future funding rate (i.e., Implied APR, which is known) and the future actual funding rate (i.e., Underlying APR, which is currently unknown and needs to be predicted by individuals):

• If you believe that the future Underlying APR will be higher than the current Implied APR, then you should go long on the rate (Long Rate). By taking a long position, you pay a fixed, lower Implied APR in exchange for the opportunity to earn a higher actual funding return (Underlying APR). If the future Underlying APR indeed strengthens as you predicted, your income (Underlying APR) will exceed your costs (the initial Implied APR), resulting in a profit. Conversely, if the market moves against your prediction, you will naturally incur a loss.
• Conversely, if you believe that the future Underlying APR will be lower than the current Implied APR, you should short the rate (Short Rate). By taking a short position, you lock in a higher fixed rate (Implied APR) as income, and expect that the actual future expenses (Underlying APR) will be relatively lower, thus netting the interest spread.

In other words, the essence of Implied APR is the price of the opportunity to buy and sell funding rate returns:

• When you Long Rate, you effectively pay a fixed rate cost (Implied APR) to earn future floating funding rate income (Underlying APR);
• When you Short Rate, you are effectively receiving a fixed interest rate return (Implied APR) and taking on the obligation to pay future floating funding rates (Underlying APR).

???? Three Major Application Scenarios

The interest rate swap feature introduced by Boros provides various practical scenarios for DeFi users and protocols, helping them manage funding rate risks and innovate yield strategies.

Long Hedge FUNDING RATE Cost

When the market is hot, and the funding rate is consistently positive and may rise further, perpetual futures longs enjoy the benefits of price increases, but the increasing funding rate payments will reduce net profits.

By going long on the rate (Long Rate) on Boros, bullish investors pay a fixed rate while receiving a floating rate that is transferred to the bears. This is equivalent to locking in the floating and expectedly increasing funding rate cost as a fixed cost. This is akin to buying insurance against rising rates: even if the funding rate skyrockets, the additional expenses beyond the fixed portion will be offset by the floating income obtained on Boros, thereby stabilizing the cost of the bullish position. In a bull market, this move can significantly enhance the certainty of bullish strategies.

ETHENA stable funding rate income

Delta-neutral strategies like the aforementioned Ethena protocol that short perpetual futures to earn funding rate returns can also benefit from Boros. Typically, these strategies rely on a positive funding rate to generate profits, but in extreme situations, the funding rate may turn negative, leading to additional expenses for Ethena and causing losses for the protocol.

By shorting the rate on Boros (Short Rate), Ethena can convert the floating and potentially declining or even negative funding rate income into a fixed rate yield. If the actual funding rate in the future is negative, the Short Rate contract on Boros allows Ethena to receive compensation (the Short Rate requires Ethena to pay a negative floating rate, equivalent to receiving a positive floating rate income) and transfer payments to the longs, offsetting each other, allowing Ethena to steadily enjoy the fixed rate income from the Short Rate conversion without the risk of income cliffs due to funding rate fluctuations.

This provides another risk hedging method for protocols like Ethena, reducing reliance on large insurance funds or ENA incentive mechanisms, and improving capital utilization efficiency. As pointed out by Pendle officials, Boros will become a key hedging tool for such Delta-neutral protocols, helping to smooth out the yield fluctuations caused by negative funding rates and improving yield stability in a bear market environment.

DELTA NEUTRAL lock-in收益

In centralized exchanges (like Deribit), arbitrageurs can construct risk-free returns through "spot + futures". For example, if arbitrageurs notice that the current market has futures prices significantly higher than spot prices, they can execute a "Cash-and-Carry" strategy, which involves going long on the spot, shorting the futures, and holding until expiration, because at expiration, the futures and spot prices converge, allowing them to lock in the basis at the time of entry and achieve a stable return.

However, on-chain, most derivatives are not conventional futures, but rather Perpetual Futures. Although the combination of "longing spot and shorting Perps" (for example, the combination behind Ethena USDe) can still achieve Delta Neutral, and the Funding Rate mechanism can still increase the overall value of the combination, the downside is that the income brought by the Funding Rate is always fluctuating, making it impossible for arbitrageurs to lock in profits at the outset like holding futures.

The emergence of Boros has changed this situation. For example, when the Perps price is higher than the spot price, arbitrageurs go long on the spot and short the perpetual futures on-chain to obtain a positive funding rate, and then on Boros, they Short Rate, converting future fluctuating funding rate income into a fixed rate cash flow. This way, the "spot + perpetual futures" combination can lock in profits at the opening just like the "spot + futures" combination, without worrying about significant fluctuations in the funding rate eroding profits midway. This compensates for a shortcoming of DeFi perpetual futures compared to centralized futures and is expected to attract more stable funds into on-chain arbitrage and market-making.

???? impact

Significance for the Pendle platform

The launch of Boros marks Pendle's expansion from its initial focus on DeFi fixed income protocols into the vast realm of cryptocurrency derivatives interest rate markets. The funding rate, as a "crypto-native" interest rate product, boasts a daily trading volume of tens of billions of dollars but has long lacked on-chain tools. Boros has filled this gap, making Pendle a comprehensive on-chain interest rate product platform—capable of trading on-chain lending rates, staking yields, and other fixed income products, as well as trading perpetual futures and other derivatives' floating funding rates. TN Lee, co-founder of the Pendle team, stated that this means there is finally a solution for the funding rate risk that has long been unable to be hedged or speculated on-chain.

Boros has opened up new channels for fee income, and Pendle token holders' income streams will become more diversified, thereby providing more stable support for the price of PENDLE tokens. The Pendle protocol also solidifies its core position in the DeFi interest rate market.

Impact on the entire DeFi ecosystem

The emergence of Boros has improved the risk management tools in the on-chain derivatives market: traders and protocols can finally hedge the uncertainty of the funding rate through fixed-floating interest rate swaps, just like in traditional financial markets. This will reduce systemic risks in the DeFi Perptual Futures market and encourage more institutions and stable capital to participate in on-chain derivatives trading.

???? Looking to the future

Currently, Boros has set a maximum position limit of 10 million USD and a leverage of 1.2 times to control risk, and only supports the two Perptual Futures varieties of BTC and ETH on Binance. As the system matures, the team plans to open more asset markets (such as SOL, BNB) and support more derivative platforms (such as Hyperliquid, Bybit).

Overall, Pendle's Boros feature transforms the important but volatile funding rate of Perptual Futures into standardized interest rate products that can be traded and hedged in the DeFi world. This not only provides seasoned DeFi users with a new strategic tool but also takes a critical step towards bridging crypto finance with traditional finance.

With the popularization of innovations like Boros, it is believed that DeFi will be able to support larger trading volumes and more complex financial operations in the future, truly realizing the vision of "Any yield is accessible, tradable, and hedged."

• This article is based on publicly available information and does not constitute investment advice. Cryptocurrency investment carries significant risks; please make decisions cautiously, DYOR.
• If you like this article, feel free to follow, like, and share your support!