Boros Tokenizes Funding Rates as Onchain Yield Instruments

Boros, a new onchain yield instrument introduced by Pendle, is tokenizing funding rates from perpetual futures as a derivative primitive, marking a significant step in the evolution of DeFi yield strategies. Initially launched for Binance ETH and BTC perpetuals, Boros enables a market for fixed-vs-floating funding rate swaps, offering traders and protocols a mechanism to hedge directional leverage without unwinding positions. This innovation introduces a funding-rate derivatives layer that can integrate seamlessly across DeFi applications [1].

The mechanism works by allowing traders exposed to funding rates to hedge their positions on Boros by fixing their funding payments. For example, a trader long ETH perps can purchase Yield Units (YUs) to pay a fixed rate and receive a floating rate, thereby capping their cost of carry. Conversely, protocols like Ethena, which are structurally short perps to capture funding yields, can sell YUs to receive fixed payments upfront, providing greater predictability in their yield structures [1].

Boros also opens new possibilities for protocols to use YUs as collateral in money markets, enabling traders to retain directional exposure while leveraging their funding rate positions for liquidity. Additionally, it allows treasuries to lock in yield from delta-neutral trades, converting variable profit and loss into predictable income. This could attract more conservative capital, especially if fixed yields are passed through to end users [1].

According to Pendle founder TN Lee, Boros has the potential to harmonize funding rate markets, which are currently highly variable. He explained to Blockworks that the platform allows arbitrage across exchanges, leading to the convergence of funding rates. The team also highlights that the mechanics can extend beyond crypto to staking, real-world credit, or even traditional finance (CeFi) borrow/lend rates, provided there is an oracle-verifiable yield source [1].

To support this new interest-rate layer, Boros is opening dedicated vaults that earn fees and incentives by providing liquidity to fixed/floating funding rate swaps. These vaults mirror Pendle’s V2 pools, allowing liquidity providers to earn a share of the market’s fee flow. Notably, Boros does not launch a new token. Instead, 80% of its fees will accrue to vePENDLE holders, continuing Pendle’s model of rewarding long-term stakers. PENDLE emissions will also be used to bootstrap Boros vaults, creating a potential source of sell pressure that is likely to recycle into vePENDLE locks as yields increase [1].

Despite these advantages, the launch comes with complexity. Boros is “starting from 0 again,” the team admits, with its own risk engine and vault logic. The team emphasizes that risk management will be a primary focus during the initial phase, especially as new market mechanics and dynamics are experimented with [1].

One of the key dynamics involves a new type of price-volatility feedback loop. In traditional setups, a sudden spike in funding rates can force traders to unwind basis trades to avoid liquidations. With Boros, however, traders can hedge the funding leg without closing directional exposure. If liquidity is sufficient, YU markets could act similarly to interest-rate swaps in traditional finance—dampening volatility and compressing extreme funding moves. However, the effectiveness of this mechanism depends on the liquidity depth of the YU orderbook [1].

Boros is not the only project exploring the tokenization of yield-bearing positions. Notional’s Exponent upgrade similarly aims to tokenize yield strategies for leveraged users and enable those tokens to be pledged on deep-liquidity platforms like Morpho. The two projects share a functional similarity: both wrap variable cash flows into tokens that can be reliably valued via onchain oracles. This approach allows lending markets to confidently haircut these tokens, even as their value decays toward zero at expiry [1].

Together, Boros and Exponent signal a future where yield primitives become core building blocks of DeFi credit markets, reducing idle capital and enabling leveraged strategies with better risk management. The broader architectural shift is clear: any stream of yield can now serve as both a trading instrument and first-class collateral, pushing DeFi closer to a full-stack onchain fixed-income market [1].

Source: [1] Boros Tokenizes Funding Rates as Onchain Yield Instruments (https://blockworks.co/news/boros-pendle-tokenizes-funding-rates)