"Boros: The Art of Decentralized Interest Rate Trading" ---Preface--- Boros @boros_fi is a rate derivatives platform developed by the @pendle_fi team over nearly two years, bringing a new yield trading tool to the DeFi ecosystem. It currently focuses on trading funding rates, with plans to support more types of yields in the future. 📚This article will step by step analyze the core logic of Boros—from the operation principles of funding rates, the core concepts and terminology of Boros, the valuation method of Implied APR, to how to construct efficient arbitrage and hedging strategies. ---Main Text--- 1. Breaking Down the Funding Rate Mechanism💡 1. Traditional Futures Contracts: The Game of Time and Expectations📜 Traditional futures contracts have a clear expiration date. Upon expiration, both parties must fulfill their delivery obligations. Due to the existence of time value (the time cost of capital) and market expectations (views on future supply and demand), futures prices often differ from spot prices (basis). For example, if the market generally expects a certain commodity to be in short supply in the future, its futures price will often be higher than the spot price. Although many contracts now use cash settlement, the "expiration date" mechanism itself provides an anchor for futures prices, causing them to gradually converge towards the spot price as expiration approaches. This price convergence process reflects changes in holding costs and market expectations. 2. The Anchoring Secret of Perpetual Contracts: Funding Rate🔁 Perpetual contracts eliminate the fixed expiration date. To ensure that contract prices do not deviate significantly from spot prices for long periods, a funding rate mechanism is introduced: ➕ Positive funding rate: Long positions need to pay fees to short positions. ➖ Negative funding rate: Short positions need to pay fees to long positions. Funding rates are typically settled every 8 hours (Hyperliquid settles once per hour), and their level is mainly determined by the degree of deviation between contract prices and spot prices. Simply put, the stronger the market's bullish sentiment, the higher the likelihood that the funding rate will turn positive and increase. 2. Delving into the Boros System🧭 2.1 Core Unit: YU (Yield Unit)🪙 In Boros, 1 YU represents the total funding rate yield stream you can earn by holding 1 unit of the underlying asset (like ETH) on a specific exchange (like Binance). For example: In the ETHUSDT-Binance market, 1 YU equals all the yields obtainable from holding 1 ETH on Binance. Based on this basic unit, Boros has created an interest rate swap market that users can utilize for: 🔹🔐 Hedging risk: Converting floating funding rates into fixed rates 🔹📣 Expressing views: Betting on the future trend of funding rates 🔹🧮 Executing arbitrage: Locking in cross-market interest rate differentials 2.2 Two Key Rates💱 🔹Implied APR -> The market's implied fixed annualized yield 🔹Underlying APR -> The actual floating funding rate annualized yield generated by the exchange From a trading logic perspective: 🟢 Going long on YU (similar to YT): Pay Implied APR Receive Underlying APR Long condition: Expect Underlying APR > Implied APR 🔴 Going short on YU (similar to PT): Pay Underlying APR Receive Implied APR Short condition: Implied APR > Expected Underlying APR 2.3 Practical Example 🎯 Assumption: The actual average Underlying APR (actual funding rate) for Binance ETHUSDT: 10% The Implied APR on Boros (market implied fixed rate): 7% Contract expiration time: 49 days Your position: 10 YU Action: Go long on YU. Result: Fixed payment: 0.09511 ETH (approximately 361 USD) Floating gain: 0.1342 ETH 📊 ROI: 41% ｜ 🚀 Annualized yield (APY): 300% 3. Advanced: Implied APR <-> Basis📐 It is recommended to refer to the Basis to price Implied APR (Figure 1 shows the basis, which is the relationship between the Fixed rate and the funding rate). Even in ideal circumstances, the Implied APR will not align with the Underlying APR before the expiration date; the closer it gets to the expiration date, the closer the two will be. For its pricing, if any friends are interested, I will publish a separate article to discuss it later. 4. Practical Strategies: Arbitrage and Hedging🛠️ 👉Strategy One [Speculative Strategy, more volatile than memes] When there is a significant divergence between Implied APR and expected Underlying APR: Scenario A [Reversion]: Implied APR (12%) > Underlying APR (8%) Action: Go short on YU. Lock in this 4% fixed price differential profit. Scenario B [Natural Leverage]: Implied APR (5%), but a certain meme's expected Underlying APR (40%) Action: Go long on YU. Capture the increase in funding rates during the meme's rise. Risk: Note that this strategy is coin-based. 👉Strategy Two [Constructing a Delta Neutral Funding Rate Yield Strategy] In Boros: Go long on YU (betting on rising funding rates). In CEX: Go short on an equivalent perpetual contract (which requires paying the funding rate). Combined effect: If the actual funding rate is higher than the Implied APR on Boros, then this combination can generate net income while hedging against spot price volatility. Looking forward to Boros launching a U-based market in the future. 👉Strategy Three [Cross-Platform Triangular Arbitrage] Check funding rates across multiple platforms: In exchanges with high funding rates (like Binance): Go short on perpetual contracts (receive high funding rates). In Boros: Go short on the corresponding YU (lock in fixed income, hedging the risk of going short on Binance). In exchanges with low funding rates (like Bybit): Go long on equivalent perpetual contracts (pay low funding rates, forming a hedge). Goal: Earn the net profit margin between Binance's high funding rates, Boros's short income, and Bybit's low funding rate payments. ---Conclusion--- Boros! Just do it! I will continue to update Boros articles and videos in the future~ @ViNc2453 @kevin0x0 @pendle_grandma"

@boros_fi @pendle_fi Add some nicer pictures.

@boros_fi @pendle_fi There are also arbitrage opportunities between basis and implied APR... Boros has a lot of gameplay options. It would be great if we could have a one-click strategy deployment tool.

The relationship between Implied APR and Basis