A detailed analysis of Pendle’s Boros perpetual contract rate hedging protocol: what’s different?

Boros by Pendle is a protocol that converts perpetual contract rate changes from CEX/DEX into tradable assets, functioning as a prediction market for future rate fluctuations.
It compares two key metrics:
- Implied APR: The market-predicted rate on Boros, tradable via an order book.
- Underlying APR: The actual annualized rate from Binance Perpetual Futures (e.g., 0.01% per 8 hours → 10.95% APR).
Trading outcomes depend on whether the Underlying APR exceeds (long profits) or falls below (short profits) the Implied APR, with settlements every 8 hours.
Mechanism: Rebase and arbitrage ensure Implied APR converges to Underlying APR as maturity nears, minimizing rate fluctuation uncertainty.
Use Cases:
- Long Positions: Speculate on rising rates, cyclical trends, mean reversion, cross-product arbitrage (e.g., BTC vs. ETH), event-driven trades, or hedging DeFi staking risks.
- Short Positions: Used by entities like Ethena Labs to lock in funding rates, miners/stakers hedging fees, or pure speculation.
Innovation: Independent pricing allows market-driven rate expectations without forced anchoring, enabling future products (e.g., varied maturities, multi-exchange rate averages).
Current Support: Binance BTC/ETH perpetuals on Arbitrum (Cross Margin/Isolated Accounts), with plans to integrate Hyperliquid.
Potential: Boros could evolve into a market sentiment indicator and inspire new DeFi products, similar to Pendle’s PT/YT model for airdrop scenarios.

Glossary terms (e.g., YU, Maturity) clarify key concepts but are omitted here for brevity.

Written by Godot

In a nutshell, Boros converts the “changes” in the perpetual contract rates of CEX and DEX into tradable assets.

Note that this refers to the "change" in transactions, not simply tokenizing the fees themselves. Boros is essentially a perpetual contract rate prediction market.

So how does this "change" manifest? Boros uses a comparison of two values:

1) Implied APR: The current price of the instrument on Boros (actually reflects the rate predicted by Boros traders);

The Implied APR is the price that users pay when they trade within Boros, as shown in the order book below.

2) Underlying APR: The current actual rate for this product on Binance Perpetual Futures.

In fact, it is to display the current rate of Binance perpetual contract in APR, that is, annualized form. For example, the current Binance BTCUSDT perpetual contract rate is 0.01%, and it is settled every 8 hours. So the annualized, or basic APR, is

0.01% * 3 * 365 = 10.95% .

In a nutshell, when trading on Boros, it actually depends on whether the base APR is higher or lower than the implied APR, that is, whether the actual rate of the Binance perpetual contract in the future is higher than the current pricing in Boros.

If it is higher, long positions make a profit; if it is lower, short positions make a profit.

As maturity approaches, the implied APR converges toward the base APR.

Therefore, users trade at the Implied APR price on Boros and can conduct long and short trades, currently supporting up to 1.4x leverage.

1/ Go long

This is equivalent to going long on the fee rate, believing that Binance’s actual fee rate (Underlying APR) will be higher than Boros’ current fee rate (Implied APR).

At the end of the Next Settlement countdown, you will receive the difference between the Underlying APR and the Implied APR, which is currently 9.77% - 7.84% = 1.93%.

Because the Binance perpetual contract rate is settled every 8 hours, and the same is true for Boros, you will get it when the countdown ends.

1.93% / 365 / 3 = 0.001762%

It will be directly rebased to the account balance.

2/ Short selling

It is equivalent to the short-selling rate, and it is believed that the actual rate of Binance (Underlying APR) will be lower than the current rate of Boros (Implied APR).

At the end of the Next Settlement countdown, you will receive the difference between the Implied APR and the Underlying APR, which is currently 7.84% - 9.77% = 1.93%.

Same as above, the income is,

-1.93% / 365 / 3 = -0.001762%

Rebase directly to the account balance.

The next question is: How does the Implied APR converge to the Underlying APR at maturity?

First, the existence of the Rebase mechanism for rate settlement every 8 hours will make the implied APR converge to the "actual cumulative average rate".

As the expiration date approaches, the uncertainty of rate fluctuations decreases, making arbitrage possible.

Assume a situation,

Current implied APR for Boros on BTC = 6.50%
The current Binance actual rate, which is the base APR = 8%
Actual average rate for the past 47 days and 22 hours = 7.85%
2 hours left until the final expiration date

Actual operation:

The fee rate for long BTCUSDT on Boros supports an implicit APR of 6.5%, receiving 8% at maturity, and a net return of 1.5% in 2 hours.

Calculation process:

48 days is 48 * 24 = 1152 hours

Even if the last extreme situation occurs and the rate drops to 0,

(7.85% * 1150 + 0% * 2) / 1152 = 7.836%

Even in the worst case scenario, you will still receive 7.836% at maturity, and the 2-hour return is 7.836% - 6.5% = 1.33%.

summary:

Therefore, the changes in transaction fees within Boros and the actual fees of Binance perpetual contracts are actually two parallel pricing systems.

Transactions within Boros reflect the market's expectations for future changes in market rates.

On the other hand, the 8-hour fee settlement system (the 8-hour system is based on the Binance perpetual contract fee settlement rules. If Hyperliquid fee products are subsequently launched, the settlement time of this series of products will be set to 1 hour according to Hyperliquid rules) and arbitrage will cause the Boros transaction rate, that is, the implied APR price, to gradually approach the basic APR, which is the actual Binance fee rate.

Since the price system is relatively independent, where do the long and short orders come from? What is the demand for long and short positions?

The changes in the fees for going long or short using Boros are actually the usage scenarios of Boros.

1/ Go long

1) Pure directional speculation

For example, the current perpetual contract rate is at a low level, and the expected market rise will drive up the contract rate.

2) Cyclical Trading

During weekends or when institutions calculate performance, the market is not active and the contract rates are low, so you can choose to open a long position.

3) Mean Arbitrage

It is expected that current rates are too low and will at least return to the historical mean.

4) Cross-product arbitrage

The correlation between the fees of two underlying assets, such as BTC and ETH, approaches 1. However, there is a significant difference between the two currently. You can choose to short the one with the higher implied APR and go long the one with the lower.

5) Event Trading

Go long on rates before anticipating a positive event, such as a tariff settlement.

6) Rate hedging

For example, if you're staking in DeFi to earn a fixed return based on the underlying asset, and you have a short position in a perpetual contract to hedge against the risk of fees turning negative or fluctuating, you can go long on Boros to stabilize your costs.

7) Advanced Strategies

For example, combine with options trading and combine advanced strategies.

2/ Short selling

1) Largest customer: Ethena Labs

The core of Ethena's income is to short ETH, earn funding rates, and reward USDE stakers.

Ethena can short the ETH rate and provide fixed APY returns to USDE stakers. In this way, Ethena can actually launch a tiered yield product, providing stakers with two options: fixed APY and non-fixed APY.

2) Miner/Stakeholder Hedging

Short ETH perpetual, lock in ETH staking income, short funding rate, lock in rate.

3) DeFi staking and short position fee hedging

In addition, of course, it also includes purely speculative transactions, cyclical transactions, and various arbitrage scenarios, etc.

Long and short demands, they are counterparties to each other.

The chart below shows the 24-hour trading volume and positions of Boros on the first day of its launch.

To sum up, Boros product design is actually very, very, very clever.

The independent pricing system allows users to monitor changes in transaction fees within Boros, allowing market participants to speculate on future market changes.

If the current rate is forced to be anchored, the intended transaction loses its meaning.

There is room for greater innovation in the future, such as creating products with various maturities, such as 1 month, 3 months, 6 months, etc., and creating combined products, such as the average fee rate of multiple exchanges. As long as there are sufficient long and short counterparties.

In fact, Pendle's PT and YT are also priced independently of each other. They not only mechanically anchor the expected value of the underlying assets, especially YT, but also allow market competition to reflect the future value, which also leads to the airdrop scenario.

That is, users who hold YT, even until it reaches zero, can receive ETH Staking and Restaking project airdrops.

Boros continues this concept, allowing the market to determine the reasonable price of the rate, and maintaining relative rationality through rate settlement and arbitrage mechanisms, but without forcing anchoring.

Currently, Boros is an excellent arbitrage and risk hedging tool. In the future, it may become an indicator of changes in market expectations and may also lead to the development of more DeFi products.

Replenish:

Enter the product https://boros.pendle.finance/markets Connect your wallet, click the Top-up in the upper right corner to top up, support

In the Arbitrum chain, accounts are divided into two modes: Cross Margin and Isolated Account.

Currently, Binance Perpetual Contracts U-based BTC and ETH varieties are supported. According to the official Docs, Boros will also support Hyperliquid.

Glossary:

1) YU (Yield Unit) - Yield Unit. For example, 1 YU-BTCUSDT-Binance represents the total funding rate income generated from a 1 BTC position on Binance from now until the expiration date. (To simplify understanding, YU is not mentioned in the original article.)

2) Maturity: The expiration date of the YU contract. All profits will be settled after the expiration date.

3) Implied APR (Annualized Rate of Return): The Boros market's expectation of the average funding rate before maturity, also known as the trading price of YU;

4) Underlying APR: The real-time funding rate for this product on Binance Perpetual Contracts, obtained via an oracle and used for settlement every 8 hours.

5) 24h Volume: The total volume of YU traded in the market over the past 24 hours.

6) Notional OI (Notional Open Interest): The total size of all current open contracts, measured in the underlying asset (BTC/ETH);

7) Long/Short Rate ROI: The potential rate of return calculated based on the difference between the current implied APR and the underlying APR, indicating the relative advantage of going long or short.