Over the past two years, the Pendle protocol has turned fixed income into a DeFi industry standard through the PT/YT mechanism. This year, it's Boros's turn to debut, bringing the funding rate from perpetual contracts—the long-overlooked yet consistently present cash flow—onto the chain. It is important to note that Boros itself is not a decentralized exchange for perpetual contracts but has brought the largest "rate brick" from contract trading into DeFi's main hall. In a nutshell, Boros splits the funding rate paid/received by users in perpetual contracts into a tradable, hedgeable on-chain asset. Shortly after its launch, Boros showed outstanding performance—the ETH funding rate trading volume on Binance in September exceeded $22 billion, BTC volume exceeded $6 billion, with total nominal volume surpassing $28 billion; after entering Hyperliquid's BTC/ETH funding rate market on September 12, it not only provided significant liquidity and trading volume but also directly connected cross-exchange hedging/arbitrage paths.

Just as PT dominated the DeFi fixed income track, taking its TVL to over $10 billion, Boros is also likely to establish consensus on this new track critical to CeFi: the funding rate.

What Is Boros: an On-Chain "Funding Rate Trading Platform"

Boros is the on-chain funding rate trading platform launched by the Pendle team on Arbitrum. Its core mechanism converts the funding rate revenue stream from the perpetual contract market into tradeable yield units (YUs). Each YU represents the right to receive/earn funding rate income/expenditure accumulated till maturity, calculated based on nominal principal—for example, 1 YU-ETH corresponds to "funding rate income calculated based on 1 ETH principal until maturity." Readers familiar with Pendle can understand YUs as yield tokens specialized in funding rates.

First, let's clarify what the funding rate is: in perpetual contracts with no expiration date, to align the contract price with the spot price, the trading platform settles interest ("funding") between longs and shorts periodically (often every 1/4/8 hours). When the contract price is above the spot price, longs pay shorts; when the contract price is below the spot price, shorts pay longs. The rate's magnitude is determined by market supply and demand and is usually displayed in annualized terms. For any holder, this is a continuous cash flow that will directly eat into or add to your strategy's returns.

As for Boros's funding rate trading, it follows an order book + margin format, providing an experience more similar to a futures trading platform where users can long or short the funding rate. Boros is currently live on the Arbitrum mainnet, initially supporting funding rate trading for the BTC/ETH perpetual contract market (already connected to Binance and Hyperliquid's BTC/ETH markets). By placing orders on Boros for YU matching trades, users can gain a long or short exposure to the future funding rate of the corresponding asset.

Why It Matters: The Trillion-Dollar Market Gap and the Pendle Puzzle

The volume of the crypto market's perpetual contracts is enormous: with daily trading volumes reaching as high as $1.5–2 trillion (equating to annualized tens of trillions of dollars), and open interest (OI) easily reaching hundreds of billions of dollars. However, the funding rate associated with this scale (i.e., interest paid on long and short positions) has long been an overlooked revenue stream: the lack of standardized tools in the past made it challenging for users to hedge or trade it. This led to two key issues: first, while the funding rate is a stable source of income (continuously generated in the perpetual contract market 24/7), its volatility is significant and uncontrollable, posing uncertainty for many quantitative and arbitrage strategies; second, the absence of hedging mechanisms prevented some institutional funds and strategies from confidently entering the market, limiting the depth of the DeFi rate market. Boros's emergence fills this gap—it standardizes and tokenizes the on-chain funding rate revenue, supports clearing, and incorporates this fragmented revenue curve into the DeFi blueprint, with profound implications.

Historical data on ETH perpetual contract funding rates (annualized yield) across different trading platforms shows that not only do funding rates often vary significantly between platforms, but they also frequently experience intense fluctuations. Indeed, there are players in the industry who engage in arbitrage of funding rates across perpetual contract platforms. However, these differences and fluctuations have long proved difficult to eliminate or leverage through on-chain tools, and Boros provides a standardized solution for this: enabling arbitrageurs and risk managers to enter this market, prompting funding rates across platforms to become more reasonable.

For Pendle itself, Boros is an essential piece of the puzzle. Pendle has always been dedicated to building a comprehensive on-chain yield curve, previously covering the fixed-rate realm through PT/YT products, while the funding rate belongs to the highly volatile short-term rate category. Boros introduces this floating rate into the Pendle family, extending its product line to a broader category of rates, thus filling a market gap. Boros has rapidly attracted a large number of users and funds for trading, with a total trading volume exceeding $700 million and a nominal holding of over ten thousand ETH. It can be said that the introduction of funding rate trading has brought a second growth curve to Pendle, expanding its sources of revenue and influence.

More broadly, Boros brings the previously centralized exchange-bound funding rate out onto the chain, attracting a wider range of funds to participate in DeFi. Especially for strategies and institutions that rely on funding rate revenue, this is a "dream come true" tool. For example, protocols implementing Delta-neutral strategies like Ethena. Ethena issues the decentralized stablecoin USDe, with a strategy of using volatile assets such as BTC and ETH as collateral, holding spot positions on one hand, and shorting perpetual contracts on exchanges to hedge, achieving price neutrality and earning revenue through funding rates. Of course, this scenario can also apply to many crypto hedge funds. Boros thus provides a crucial "buffer" for such protocols and institutions.

As summarized by the Pendle team, Boros can bring at least three aspects of value to these protocols: firstly, allowing protocols to proactively adjust funding rate exposure based on their judgment (long or short funding rate); secondly, effectively hedging funding rate risk to avoid extreme volatility impacting the revenue curve; and thirdly, making revenue more predictable and stable, reducing uncertainty. With Boros, Ethena's nearly billion-dollar funding rate exposure can finally be managed through on-chain tools, greatly enhancing the ability of protocols like Ethena to maintain stable revenue in various market conditions and further lowering the barrier for traditional financial institutions to enter the crypto industry.

What You Can Do: Lock Cost, Earn Elasticity, Arbitrage Basis

Lock Cost of Capital - Using Boros, you can lock the funding rate cost of your perpetual contract position at a fixed value, avoiding uncertain expenses due to market fluctuations. For example, if you hold a long position in BTC/ETH perpetual contracts on an exchange but are concerned about high positive funding rates eroding your returns, you can long a corresponding amount of YU on Boros to lock in the future funding rate. Going long on YU is equivalent to preemptively exchanging fixed interest for future floating funding rates—this way, regardless of future funding rate changes, your total funding cost is fixed, akin to buying interest rate insurance. This is particularly important for executing basis trading strategies (such as spot long + perpetual short to earn funding rates) for large institutions: they can lock in the revenue or cost of the "funding leg" of the basis trade through Boros, eliminating interest rate fluctuation risk, and comfortably hold their position until maturity. On the other hand, if you hold a short position in the perpetual market, continuously earning funding rates, you can also short YU on Boros to lock in your earnings, avoiding income reduction from future downward shifts in funding rates.

Pure Revenue Bet - In addition to hedging, Boros also provides traders with a channel to speculate on funding rate trends. If you anticipate that the funding rate of a particular market will rise in the future (for example, in a hot market where longs are aggressively opening positions, driving up the funding rate), you can long YU on Boros, equivalent to buying the funding rate long of that market. As long as the actual funding rate trend aligns with expectations, the floating returns you receive from holding YU will be higher than the fixed cost you locked in upon purchase, thus netting the basis. Conversely, if you expect the funding rate to decrease or even turn negative (for example, with increasing bearish sentiment in the market and insufficient long positions), you can short YU, betting on a rate decline and profiting from it. Since funding rates are often highly sensitive to market sentiment and funding demand, their fluctuations sometimes exceed even the price movements of the corresponding assets themselves. Therefore, leveraging the long and short tools provided by Boros to trade purely based on rate fluctuations may yield greater elastic returns than direct trading of underlying assets. This opens up a new arbitrage space for advanced traders and hedge funds.

Arbitrage and Spread Trading – Additionally, Boros has opened the door to cross-market interest rate trading. Users can simultaneously trade multiple assets or different funding rates on the platform, taking advantage of the relative differences between them for arbitrage opportunities. For example, by observing historical data, one can find that the funding rates of BTC and ETH perpetual contracts often exhibit a give-and-take pattern. Traders can go long on one asset's funding rate and short on another's on Boros, purely aiming to profit from the change in the difference between the two rates without exposing themselves to any unilateral price risk. Similarly, the variance in funding rates across different trading platforms presents arbitrage opportunities — as Boros integrates more exchanges' perpetual rates, users can even capitalize on the funding rate spread by longing and shorting different funding rates of the same asset on Boros to converge cross-platform spreads. This mechanism is poised to bring more uniformity and stability to the crypto market's interest rates, while offering lucrative risk-free profit opportunities for professional market makers and arbitrage teams.

In conclusion, Boros has interconnected the previously fragmented interest rate market, allowing various structured interest rate trading strategies to flourish: whether it's basis trading, cross-market arbitrage, or constructing one's own interest rate swap portfolio, all can be achieved on Boros.

Next Steps: Starting from Arbitrum, Making Funding Rates a Standardized Product

The Boros protocol is now successfully operational and gaining strong momentum: in its debut month, the platform's open interest surged past $61.1 million, with a cumulative nominal trading volume exceeding $1.3 billion, generating $730,000 in net revenue for the protocol. Every time the liquidity treasury opens up fresh allocations, they are quickly snatched up within minutes. TN Lee, Co-founder of Pendle, mentioned that the team will continuously monitor the growth and gradually enhance the system's capacity, introducing more significant fund flows, including supporting institutional hedging needs.

Looking ahead, Boros plans to progressively expand global coverage of the perpetual interest rate market. According to the official roadmap, in addition to BTC and ETH, Boros will support the funding rates of more high-market-cap assets such as SOL and BNB, and plans to integrate with exchanges like Bybit. In the future, users may be able to directly trade perpetual funding rates from various sources on Boros, achieving a true cross-network interest rate swap. With the expansion of market categories and the deepening of trading liquidity, Boros is highly likely to become the standard pricing venue for funding rates, introducing a completely new interest rate benchmark curve to DeFi.

It is worth mentioning that Boros did not issue a new token, but instead continued Pendle's consistent value capture model: distributing 80% of the platform's fee revenue to vePENDLE holders. This means that long-term participants in the Pendle ecosystem can directly share in the income generated by Boros's growth, giving the Pendle token more substantial value support and cash flow.

Overall, the significance of Boros lies in transforming the previously scattered and difficult-to-manage funding rates on major exchanges into on-chain tradable, hedgeable, and settleable interest rate assets. It provides DeFi with a unified pricing and liquidity venue for funding rates, while also opening a transparent and auditable hedging channel for CeFi/TradFi, allowing traditional financial institutions to manage volatility and duration in a familiar way and at a lower cost. With more assets and trading platforms integrated, Boros is poised to grow into the pricing hub and industry benchmark for funding rates, transforming this long-overlooked cash flow into a true public infrastructure of the market.

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