Observations and personal views from Nothing Research Partner BonnaZhu, the following content does not constitute any investment advice.

Pendle launched its new product Boros yesterday
Individuals are more interested in exploring the essence of this product and user profiles
Investigating the 'funding rate' long-short arbitrage market
Is it a viable business / a feasible business model?

In terms of positioning:

Pendle: Time value products, focusing on splitting and pricing
Boros: Value trading platform, focusing on arbitrage and hedging



1. Boros is a continuation of Pendle's main product

Boros continues the YT/PT logic, with the difference being:

AMM has turned into an order book, closer to mainstream market structure.

Moreover, in the main product, short yield is to buy PT, long yield is to buy YT; while Boros only retains YT, naming it Yield Unit - YU. The price of YU reflects the market's expectations of funding rate returns over a future period, essentially the market's pricing of funding rates.

Users can:

1) Go long on yield (Long YU)
- Expect to sell for profit after YU price rises
- Profit if the actual funding rate at expiration is higher than the entry price

2) Go short on yield (Short YU)
- Wait to buy back for profit after YU price drops
- Profit if the actual funding rate at expiration is lower than the entry price

2. Boros is not a retail-oriented product

Because Boros does not have a PT for mindless investment
To participate, one must make directional judgments
And rate fluctuations are often driven by emotions, changing disorderly
Unlike the original main product YT, which can still be actuarial
This makes Boros more suitable for institutions with exposure to rates

Of course, the team has also created a liquidity Vault for retail investors (essentially similarly positioned to the Vault on Hyperliquid), allowing users to passively participate in order book orders in exchange for high rewards, but this also carries risks:

1) Losses from YU positions

Because a portion of the collateral deposited into the Vault needs to be bought as YU positions to provide order book liquidity through bilateral orders (selling orders exchange YU for collateral, buying orders use collateral to buy YU).

If the pricing of YU is very low upon entry and rises later, one can still earn some fees and incentives; conversely, if the pricing of YU is high upon entry and falls later, one will incur losses.

2) The risk of gamma spiking at expiration

Unlike LPs in spot DEXs like Uniswap, Boros Vault has an expiration date, and as the expiration approaches, risk increases. If the directional judgment is wrong, losses occur similarly to option orders, representing realized losses rather than impermanent losses, resembling gamma risk scenarios in options.

Thus, normally the closer to expiration, the worse the liquidity, as LPs withdraw capital, and the worse the liquidity, the harder it becomes to close out YU positions accumulated for liquidity.

3. The embodiment of interest rate swaps in a crypto-native scenario

If we were to benchmark Boros against traditional financial products
That is 'Interest Rate Swap' — Interest Rate Swap
Essentially, it is a structure for two parties to swap interest payments:

- One party pays a fixed rate, while the other pays a floating rate
- The floating rate is often pegged to market indicators like LIBOR
- The purpose is usually to hedge against interest rate volatility

The mechanism of Boros's YU itself is essentially an interest rate swap, cleverly applied by the Pendle team to a crypto-native scenario: funding rates

1) Long yield (Long YU)
Pay a fixed funding rate upon entry (pay fixed)
Receive an uncertain funding rate at expiration (receive float)

2) Short yield (Short YU)
Lock in a fixed funding rate to be received upon entry (receive fixed)
Pay an uncertain funding rate at expiration (pay float)

4. How did the traditional interest rate swap market come about?

The traditional interest rate swap market has a scale of hundreds of billions of dollars

The reason it developed and eventually took shape is closely related to the expansion of EuroDollar (offshore dollars) after the Bretton Woods system collapsed in the 1970s, and the large number of LIBOR-linked floating rate assets and liabilities that emerged at that time, which directly led to a structural mismatch on the asset-liability side:

- Corporate/Institutional side:
Borrowing floating rate loans while investing in fixed interest bonds on the asset side

- Banking side:
Holding floating rate loans while having fixed interest deposits or bonds on the liability side

This also made both parties natural counterparties:

Corporates/institutions want to lock the floating rate as a fixed cost, while banks want to convert fixed liabilities into floating to match their assets, leading to the emergence of interest rate swaps, which expanded to include participants like hedge funds and insurance companies.

5. Is the funding rate swap market timely?

Traditional interest rate swaps rely on timing, location, and favorable conditions,
So is the funding rate swap market timely?

From the timing perspective, Boros may be correct

After all, the Perpetual market has long been a core component of the crypto market, whether CEX or DEX, Perpetuals remain the main driver of trading volume. Positive rates are also the norm and are gradually becoming similar to 'on-chain native rates', spawning a large number of basis arbitrage funds, as well as derivative issuers like Ethena Labs and Resolv Labs that rely on funding rate profits.

So is the user profile of Boros clear?

Compared to the early stage of traditional interest rate swaps where counterparties were concentrated in banks and institutions, the initial counterparties in the funding rate swap market seem to be more diverse:

1) Short Yield (Short YU) users

Their income depends on the funding rate

Mainly involves basis arbitrage funds and derivative issuers. The underlying logic of these users is often: 'Financing costs are relatively fixed, while income is floating funding rates, hoping to lock in profits'.

For example, a fund doing basis arbitrage borrows funds at a relatively stable interest rate and then shorts the cost, seeking to lock in future profits by going short YU.

Projects like Ethena and Resolv, which issue derivative assets based on funding rates, appear to have both floating assets and liabilities, theoretically presenting no mismatch and risk exposure (especially Resolv, whose RLP has transferred the rate fluctuation risk), but if they want to further smooth user profits and optimize experience, using Boros to hedge against extreme changes in funding rates theoretically provides some motivation.

2) Long Yield (Long YU) users

Their cost side is tied to the funding rate

Mainly some option sellers and long funds. The underlying logic of these users is: 'They need to pay the funding rate, hoping to lock in an expenditure cap and reduce the erosion of profits from rising rates'.

Option sellers especially reflect this, corresponding to a mainstream income strategy: Covered Call. In the crypto market, more and more funds earn option premiums by selling call options + long hedging. However, when the market rises, funding rates can easily spike, compressing sellers' profits, thus Long YU can serve as a form of 'funding cost insurance'.

Additionally, some funds hold long contracts as mid-to-long-term positions, and due to flexible leverage, can avoid some tax and custody costs, and may even obtain some positive funding rates at certain times. They prefer to use contracts rather than spot. However, rising funding rates will directly erode their profits, making Long YU a natural insurance method.

Written at the end

Boros adopts Pendle's income token logic and inherits Hype's 'order book + Vault' approach, bringing funding rates, which are still relatively 'non-standard' returns, into a tradable asset class.

In a sense, this should be considered Pendle's formal step from time-value products to a structured, institutional-level income trading platform.

One appealing aspect is that while the team continuously explores new product forms, they always return the value capture logic to the $PENDLE token, which is rare in the current market.

This content is jointly published by Nothing Research, Ebunker, and Ourbit.