🧐 Can funding rates also be traded? Pendle Boros Practical Guide: Unlocking a New Way to Trade Interest Rates!

For a long time, funding rates have been a supporting role, always subject to market regulation and passively accepted.

Who would have thought that one day funding rates could be extracted and transformed into an independent asset that can be traded separately—this has indeed been achieved by Pendle.

@pendlefi's latest lab project—Boros @borosfi, a platform focused on funding rate trading, has just launched.

After spending most of the day researching, I found that it is a true "interest rate DEX." If played well, the potential of this thing is enormous.

Below, I will try to explain the significance of Boros and how to play it in simple terms—

1️⃣ Core Mechanism of Boros: How is the funding rate tokenized?

Those who have traded contracts know that the funding rate is the core mechanism for balancing long and short positions in perpetual contracts:

Positive rate → Longs pay Shorts

Negative rate → Shorts pay Longs

The problem is, it has always been fluctuating, like farmers relying on rain, sometimes abundant and sometimes scarce, making position costs full of uncertainty.

Boros' approach is to turn this "fluctuating rain" into a tradable "yield asset."

The core unit of Boros is called Yield Units (YU).

You can understand it as: holding 1 BTC perpetual contract, the cash flow of the funding rate you should receive over a certain period. For example:

Holding 1 YU-BTC (1 month) is equivalent to buying the funding rate yield generated by 1 BTC perpetual contract over the next month.

Going long on YU = Paying a fixed APR (Implied APR) to obtain the floating funding rate yield of the underlying asset. If the actual rate is higher than the fixed rate → Profit; otherwise, loss.

Going short on YU: Receiving a fixed APR and paying the floating funding rate cost of the underlying asset. If the actual rate is lower than the fixed rate → Profit; otherwise, loss.

Settlement frequency is synchronized with the exchange, and after expiration, the value of YU goes to zero, with profits and losses automatically settled.

A more intuitive example:

Assuming the current price of $BTC is $100,000, and the Binance funding rate is annualized at 6%, you go long 10 YU-BTC on Boros at a 6% YU-APR;

After 8 hours, the funding rate rises to 8%;

Your profit = Nominal value × (Actual APR - Fixed APR) × Time = 10 × 100,000 × (8%-6%) / 365 / 3 = 18 USDT

You will find that the profit and loss here are unrelated to the price of the underlying asset; it is entirely a game of interest rates.

2️⃣ Why have Boros? What is its market?

You might ask: Why trade funding rates when you can just trade cryptocurrencies? This seems to have no market!

You are completely mistaken. The answer is simple: the volatility of funding rates is far more violent than you think, and it is the norm.

🔸 The funding rate for BTC/ETH perpetual contracts often oscillates between -3% and +6%.

🔸 In a high-leverage structure, a 3% interest rate spread can amplify to over 50% returns.

🔸 For stablecoin protocols (like Ethena), high-frequency arbitrageurs, and asset minting, funding rates are the core source of profit.

In the past, the ways to handle funding rate fluctuations were either to endure them or use complex multi-leg hedging (spot + perpetual + delta-neutral + OTC settlement)—the threshold was too high for ordinary people to participate.

Boros is the first to "securitize" funding rates, much like trading the expected trends of U.S. Treasury yields:

If you think the funding rate will rise in the future → Go long on YU, locking in the low APR you need to pay now.

If you think market sentiment is turning bearish and the funding rate will fall → Go short on YU, locking in the high APR you need to receive now.

3️⃣ Who is suitable to participate in Boros?

From the mechanism of Boros, it is clear that this is not a platform aimed at novice speculators, but it should be highly attractive to the following types of people:

1) Spot + Contract Traders: Hedging funding rate costs/returns

For example, if you have opened a long position of 100 BTC perpetual contracts on Binance and see the funding rate rise from 0.1% to 0.3%, you want to lock in your interest expenses.

→ You can go long on YU-BTC on Boros to lock in a fixed APR to hedge against this cost fluctuation.

Conversely, if you want to short BTC to capture the funding rate but fear that the market will recover tomorrow and the funding rate will drop, you can short YU-BTC to lock in your profits.

The essence of this approach is: turning the risk of funding rate fluctuations into predictable costs.

2) Spread Traders / DeFi Structured Players

Boros can also implement delta-neutral strategies, for example:

You hold Lido's ETH (earning 4% annualized), while shorting ETH perpetual on Binance (hedging price risk), and then shorting YU-ETH on Boros to lock in funding rate income.

This combination can generate a stable high-yield note: staking interest + funding rate arbitrage, not relying on ETH prices, only capturing structural spreads.

This is a pure benefit for yield-focused stablecoin issuers like Ethena, as there are many things that can be done with Boros.

Additionally, here are a few points to note when using Boros—

① You can open a position with a margin of 1-2%. It is recommended not to use leverage initially; wait until you are familiar with the net balance mechanism before scaling up.

② If the margin ratio falls below the maintenance margin, liquidation will be triggered.

③ It is best to close positions or roll over a few days before expiration to avoid increased slippage due to concentrated funding or liquidity pitfalls.

④ Always remember to keep an eye on the Implied APR; this number is actually the price expectation of YU.

⑤ Besides direct trading, users can deposit funds into the Boros vault to provide liquidity to the market, earning a share of trading fees, PENDLE token rewards, and vault value growth, with current LP rates reaching 460%. However, the risk characteristics of vault positions are similar to going long on YU; if the implied APR decreases, there may be significant impermanent loss, so it is only recommended for DeFi veterans to research and try!

4️⃣ Conclusion—

In the past, we traded cryptocurrencies to profit from volatility;

Now we trade interest rates to hedge structural risks and earn more stable profits.

Pendle has already split the rights to yield into PT / YT, opening the chapter of on-chain interest rate markets.

Now, Boros further structures the black box variable of funding rates, turning it into an independent asset that can be priced, traded, and derived.

The future imagination space behind this is—

📍 Possibly supporting funding rates from more exchanges: OKX, Bybit, Hyperliquid

📍 Covering more cross-chain assets: SOL, ARB, OP, and other long-tail coins

📍 Introducing real-world RWA interest rate products, becoming a bridge for interest rates between TradFi and DeFi

By then, stablecoins, yield notes, hedge funds, and even traditional institutions' interest rate strategies may directly use Boros' YU as a benchmark—think about how interesting that could be!

Finally, I have a practical suggestion for everyone who has just come into contact with and wants to understand Pendle Boros—

If you are not yet ready to open a position directly, you might want to try shadow hedging first:

Open a very small perpetual long position on a CEX, such as 0.001 BTC, and then go long YU-BTC 1:1 on Boros (or open both short positions simultaneously), observe the changes in funding flows on both sides, and familiarize yourself with the UI and settlement mechanism.

This way, even if you incur a loss, it will be minimal, but you can quickly grasp the logic of the entire funding rate trading.

You can start learning about Boros-related operations here: https://pendle.gitbook.io/boros/boros-docs

The Pendle community has also opened a new Boros discussion channel, where you can ask any questions: https://t.me/PendleFinance_CN

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