Boros Tokenizes Perpetual Funding Rates Into Tradeable Yield Units

Boros, the latest innovation from Pendle, introduces a novel mechanism by tokenizing perpetual funding rates into tradeable units, enabling fixed-vs-floating swaps that offer hedging, collateral use, and yield stabilization across decentralized finance (DeFi) protocols [1]. This development aligns with the broader trend of yield tokenization, which is reshaping DeFi’s capital efficiency and risk management capabilities. By transforming the highly volatile funding rate streams from perpetual futures into on-chain tradable assets, Boros aims to provide a structured and modular financial primitive that can plug into existing DeFi ecosystems [1].

The Boros system allows traders to engage in funding rate swaps that lock in either a fixed or floating rate, depending on their risk exposure. For example, a trader holding long positions in ETH or BTC perpetual futures can mitigate funding costs by purchasing Yield Units (YU) on Boros, effectively capping their carry costs. Conversely, protocols that short perpetuals—like Ethena—can sell YU to lock in a stable return, converting otherwise volatile funding income into predictable yields [1]. This mechanism is particularly valuable for protocols that rely on consistent income streams, as it helps in managing tail risks and simplifying reserve allocation.

The tokenized YUs are structured with a defined maturity and oracle-based valuation, making them potential candidates for use as collateral in money markets. This could enable traders to borrow stablecoins against their hedges without closing their positions, enhancing capital efficiency [1]. For protocol treasuries, Boros offers the ability to lock in yield streams from delta-neutral trades, transforming volatile profit and loss into predictable income—thereby attracting more conservative capital into the system [1].

Pendle founder TN Lee envisions that this system could eventually harmonize funding rates across exchanges through efficient cross-platform arbitrage, reducing market fragmentation [1]. The model is not limited to perpetual funding rates; any yield stream that can be verified via an oracle—such as staking rewards, real-world credit, or centralized finance (CeFi) lending rates—could be tokenized using a similar mechanism [1]. To support this, Boros plans to launch dedicated liquidity vaults, rewarding liquidity providers (LPs) who absorb hedging demand, a design pattern similar to Pendle V2 pools [1].

Boros is not operating in isolation; it aligns with broader innovations in DeFi, such as Notional’s upcoming Exponent upgrade, which also aims to tokenize variable yields for use as collateral. Notional’s Smart Redemption feature allows users to redeem staked assets without withdrawing them from a lending protocol, reducing exit costs and enhancing the utility of yield tokens [1]. Both Boros and Exponent rely on a shared design principle: wrapping variable cash flows into oracle-verifiable tokens that can be priced and tracked to maturity, enabling lending markets to treat them as predictable collateral.

From a tokenomics perspective, Boros does not introduce a new token. Instead, 80% of fees are allocated to vePENDLE holders, with PENDLE incentives used to bootstrap liquidity in vaults [1]. This structure avoids unnecessary dilution while channeling new revenue into the existing token model. However, the team acknowledges that Boros is launching “from zero” and will prioritize risk control, particularly as the market tests new mechanics [1].

One of the key risks lies in early-stage liquidity and potential reflexivity, which Boros mitigates by capping open interest at 1.2 times perpetual open interest [1]. If the system gains sufficient depth, the ability to cheaply hedge funding costs could reduce extreme swings in funding rates, potentially dampening overall market volatility. This aligns with broader goals of improving market stability and enhancing the resilience of DeFi protocols.

Ultimately, Boros is not just tokenizing a niche yield stream—it is inserting a new interest rate derivatives layer into DeFi architecture [1]. This layer can integrate with money markets, structured products, and even real-world credit instruments, reinforcing a broader shift in DeFi: any predictable, oracle-verifiable yield can become both a tradeable instrument and first-class collateral [1]. If this concept takes hold, DeFi could evolve into a full-stack fixed-income market—onchain, composable, and capital-efficient.

Source: [1] Pendle Boros: Turning Funding Rates Into Tradeable “Building Blocks” (https://coinmarketcap.com/community/articles/68957e64460ddc4edad487d5/)