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Funding-Rate Volatility: The Pain Point
Perpetual-swap funding rates swing wildly, giving traders migraines. Pendle’s brand-new Boros module—live on Arbitrum since August 6, 2025—turns those very rates into a brand-new, fully on-chain asset class. Users can now hedge exposure or speculate on future funding-rate direction, while protocols such as Ethena finally get a tool to smooth their volatile yield streams.
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Funding-Rate 101
Perpetual contracts have no expiry, so exchanges use a “funding rate” to keep perp prices close to spot.
• If the perp trades above spot, longs pay shorts.
• If below, shorts pay longs.
Daily perp volume is now in the hundreds of billions; BTC and ETH funding rates have averaged 7.8–9 % annualized. That translates into millions of dollars swapping hands every day.
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The Volatility Problem
Funding rates can flip fast. ETH, usually positive (longs pay shorts), can suddenly go negative in volatile markets.
Ethena’s USDe, a yield-bearing stablecoin, earns most of its yield by shorting perps and collecting funding. When the rate turns negative, the revenue stream becomes a cost center. Ethena has therefore:
• Built a $39 M+ insurance fund.
• Issued ENA incentives to keep some yield inside the protocol as a buffer.
Boros now offers a cleaner solution.
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Boros: Turning Funding Rates into Tradeable Assets
Boros introduces Yield Units (YU)—tokenized claims on the funding-rate cash-flow of a given perp position over a fixed period.
Example: 5 YU-ETHUSDT-Binance entitles the holder to all funding payments on a 5-ETH short position on Binance until expiry. At expiry the YU settles to zero.
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Two Rates Drive the Trade
• Implied APR – The market price of the YU expressed as an annualized fixed rate.
• Underlying APR – The actual funding rate generated by the perp, fluctuating in real time.
Trade mechanics:
• Long Rate – You pay the Implied APR and receive the real-time Underlying APR; profitable if actual rates rise above the implied.
• Short Rate – You receive the Implied APR and pay the Underlying APR; profitable if actual rates fall below the implied.
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Use-Case 1: Longs Hedge Their Funding Cost
In heated bull markets, funding can spike. A perp long can Long Rate on Boros, locking in a fixed funding outflow. Any excess paid to shorts is offset by Boros cash-flows, stabilizing P&L.
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Use-Case 2: Ethena Locks in Funding Income
By Shorting Rate, Ethena swaps its variable funding receipts for a fixed yield. If funding turns negative, Boros compensates Ethena, eliminating the need for massive insurance funds or token incentives.
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Use-Case 3: Delta-Neutral Arbitrage
Cash-and-carry trades on centralized venues use dated futures to lock the basis. On-chain, perps lack expiry, so funding-rate volatility can erode delta-neutral profits.
With Boros, an arbitrageur can Short Rate after entering “long spot / short perp.” The floating funding income is swapped for a fixed rate, replicating the certainty of traditional futures convergence.
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Impact on Pendle
Boros propels Pendle beyond fixed-yield tokens into the vast world of derivative rates. Funding rates—native to crypto and trading billions daily—now have native on-chain instruments. Pendle collects fresh fee streams, diversifying yield for PENDLE stakers and reinforcing the protocol’s position as the go-to hub for all on-chain interest-rate products.
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Impact on DeFi at Large
By introducing fixed-for-floating swaps, Boros lowers systemic risk in perp markets, invites institutional capital, and nudges DeFi closer to TradFi-grade tooling.
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Roadmap
Current caps: $10 M open interest, 1.2× leverage, BTC & ETH on Binance. Upcoming expansions include SOL, BNB, and integrations with Hyperliquid, Bybit, and more.
Boros has transformed the unruly funding-rate stream into a standardized, tradeable, hedgeable instrument—one more step toward the DeFi endgame: “Any yield is accessible, tradable, and hedged.”
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