Pendle: The Fixed Leg in a World of Floating Rates

That asymmetry mattered. Allocators had no way to secure forward returns. Borrowers faced unstable costs of capital. Every position carried embedded volatility, even when the underlying asset did not. Pendle introduced this missing piece of infrastructure, providing a system where participants could choose between certainty and exposure rather than being forced into both.

Pendle turned yield into a market

At its core, Pendle, an onchain interest rate derivatives market, decomposes an asset into two claims.

• The Principal Token (PT) represents ownership of the underlying asset at maturity.
• The Yield Token (YT) represents the right to all yield generated until that maturity.

This mirrors a familiar structure in traditional markets. Strip the coupons from a bond and you are left with two instruments, a zero-coupon bond (principal) and a stream of cash flows (yield). Pendle operationalized that idea onchain.

Investors seeking certainty can buy discounted PTs and lock in a fixed return as the principal converges at par at maturity. Those willing to speculate on the expectation of future yield can buy YTs.

Price does the rest. If demand for fixed income rises, PTs are bid up and implied yields to maturity compress. If traders chase yield, YTs inflate and implied rates rise. Yield is no longer passively received, it is actively priced, and that shift unlocked real product-market fit for Pendle as the decentralized finance fixed income instruments layer.

(Source: Token Terminal)

At its peak, Pendle’s total value locked reached $13.1bn. A significant portion of that growth was driven by Ethena yield-bearing stablecoins, specifically USDe and sUSDe principal tokens, many of which were routed into Aave distribution pools from May 2025 onwards. Roughly $4.6bn (more than a third of total TVL) was Ethena driven, and it was only the visible part on Aave.

The trade was simple. High synthetic dollar yields met a structure designed to lock them in. Capital followed. Then yields compressed. Funding rates declined as the market turned defensive. Ethena faced outflows. The perceived risk of USDe rose. The forward curve flattened, and with it, the incentive to roll positions into new expiries.

Pendle expanded the maturity component into DeFi. But maturity also forces decisions. When yields no longer compensate for risk, capital does not roll, it exits.

TVL fell to $1.96bn, a multi-year low that drove protocol revenues down in the process. But even now, over half remains tied to Ethena-linked assets, with around $1.33bn spread across sUSDe, USDe and srUSDe. Meanwhile, USDe PT collateral on Aave dropped to approximately $515mn, down nearly 90% from peak levels.

Pendle proved that fixed yield has demand. It also strongly suggested that yield itself must diversify.

Tapping into the perpetual markets backbone

Perpetuals trading did not merely grow last cycle, it consumed everything else. Since 2021, perpetual futures account for roughly 80% of total traded volume across the two dominant venues.

(Source: CoinMetrics)

Even in bear markets, the machine keeps running. Funding rates keep accruing. Positions keep rolling. And until now, that yield has been almost entirely unstructured, collected ad hoc, eroded by volatility and never properly financialized.

Boros is Pendle's answer to that gap. Where Pendle's core product built a fixed-rate market on top of liquid staking and restaking yields, Boros does the same for perpetuals funding, the largest and still untapped variable-rate market in crypto.

The addressable pool is not one protocol's TVL. It is the aggregate open interest of every leveraged trader across every exchange.

(Source: Dune Analytics)

Boros launched in August 2025. In its first full month, it cleared $387mn in trading volume and generated just under $31,000 in fees. By January, monthly volume had reached $2.9bn, cumulative volume crossed $9.8bn and fees had compounded to $416,000. The fee contribution to Pendle’s broader protocol revenue went from less than 1.0% to 10% by March, crossing 5.0% for the first time in December before compounding through January and February as the product found its footing. As a sub-product less than eight months old, Boros slowly became a significant driver in Pendle’s top line as the latter massively compressed since October.

(Source: Dune Analytics)

December and January witnessed Boros posting peak metrics since its inception, with open interest at monthly maturity representing approximately 0.6% of the combined BTC and ETH perpetual open interest across major venues.

A move to just a 5.0% market share on an open interest base exceeding $50bn implies a protocol operating at a scale that would rank it among the largest DeFi applications by notional.

Boros turning funding rates into a market

The Yield Unit (YU), Boros's core primitive, is the instrument extending Pendle’s logic into perpetuals.

A YU represents the right to funding rate payments on a given asset over a fixed period. One YU on Bitcoin, for instance, encapsulates the annualized funding yield from entry to maturity. It is structurally identical to a floating-to-fixed interest rate swap in traditional finance, and the two P&L sources map directly onto traditional bond mechanics.

• The pricing leg (Market Implied APR) represents the market's aggregate expectation of funding rate payments from now until maturity, fully driving actual YU token valuation as pure capital gains, much like buying a bond at a discount.

• The settlement leg (Underlying APR) is the actual funding rate reported by an oracle from real exchange settlements. This accrues continuously to mirror the underlying market’s schedule and drives cash flows, acting as the coupon payment of the bond.

  It is structurally identical to a floating-to-fixed interest rate swap in traditional finance. When entering a position, the market-implied APR is locked in as a fixed rate until maturity, regardless of what funding does afterward. The implied leg determines how future cash flows are priced today, either paid or received by the user. The underlying leg determines what those cash flows actually are in real time, and the direction of the trade determines which side of the spread market participants sit on.

Hence, the straightforward instrument utility would be to express a directional bet simply on funding rates, mirroring any fixed-income trade as a view on the forward curve of a rate.

• Long rates. Expect funding to rise as the market underprices future bullishness on the underlying, with the implied APR (paid when longing) appearing cheap relative to where the user thinks the underlying APR (received when longing) will settle in the future.
• Short rates. Expect funding to collapse as the market overpays for future annualized funding on the underlying, locking in the fixed implied APR (received when shorting) while keeping exposure to the floating underlying APR (paid when shorting) before it compresses.

Liquidation cascades add another layer of granularity to this directional bet. When order books on the underlying perpetual get wiped, with longs or shorts blown out in sequence, funding rates reprice sharply in the aftermath. As leveraged longs get liquidated, demand for longs falls and funding rates follow, and vice versa for the shorting leg. Traders who track liquidation thresholds across major venues and position their YU exposure accordingly are playing a second-order game that most participants are not even aware exists.

Levelling up the carry trade and the hedging game

Perpetual markets may trade the same underlying asset, but they do not share the same balance sheet. Liquidity is uneven. Positioning diverges. Risk engines and collateral frameworks differ across venues. The result is persistent dislocations in funding rates, with identical exposure priced differently depending on where you hold it.

A classic arbitrage strategy would be to long the same underlying asset where funding is cheap, short it where funding is expensive and pocket the spread between the two venues. It works, but it is capital-intensive, execution-heavy and exposed to the path of funding over time.

Boros abstracts that complexity into a rate itself. Instead of trading two legs across venues, the protocol lets users lock in elevated fixed yields the moment a carry opportunity appears, expressed as an annualized yield, locked at entry and settled against whatever funding realizes.

One active example of such a strategy would be to long ETH/USDT funding rates on Binance and short ETH/USDC on Hyperliquid, locked via Boros at a 9.5% APR to a June 2026 maturity. The raw spread between the two legs is roughly 250 basis points. The gap between that and 9.5% is the inherent leverage embedded in the YU structure, amplifying a modest rate differential into a return that competes with anything in DeFi today.

But funding rates are not just an opportunity, they are a cost centre for anyone running a leveraged directional book.

For example, on Hyperliquid's HIP3 markets, annualized funding rates on Crude Oil perpetuals swung up to 4,425%, translating to roughly 12% of notional paid daily for exposure to a single contract over the past weekend's RWA trading frenzy. That would be a position-destroying event for anyone unhedged.

Going long rates on Boros while holding the same perpetual exposure compresses the effective volatility of funding costs to near zero, as you pay the fixed market-implied APR and receive the underlying floating rate. This turns an uncontrolled cost into a known, bounded one.

Boros effectively operates as a second-order derivative of market movements, which creates a specific edge during low-liquidity windows, namely weekends and out-of-hours sessions when traditional finance is closed but crypto perpetuals still trade around the clock. Positioning in rate expectations before a major macro open, when the underlying perpetual market is thin and mispricings are more persistent, is a use case that does not exist in any other instrument. The trader who understands this is not competing with the crowd. The crowd has not arrived yet.

But the inherent leverage embedded into the YU has to be considered. One YU hedges funding for one unit of the underlying asset. Depending on the asset's price and the expected funding rate to expiry, that YU will carry a different cost, and therefore a different inherent leverage ratio. When the YU is cheap relative to the underlying notional it represents, a small move in funding rates produces an outsized PnL impact. 

What this means for Pendle

Principal tokens found their product-market fit when they were embedded into the DeFi lending stack. Aave collateral integration turned a niche fixed-rate instrument into infrastructure that the entire ecosystem routes capital through. Boros is at an earlier stage of that journey. Today it is niche, broadly misunderstood and operating at a fraction of its addressable market.

Boros's current exposure is concentrated heavily in BTC and ETH. The latter dominates at roughly 50% of the market, reflecting the sharper funding rate swings ETH has generated relative to Bitcoin lately. But the product is already expanding. Stocks and commodities are live. The roadmap points towards any variable interest rate that trades on a perpetual market. As the crude oil example illustrates, non-crypto asset classes can generate funding volatility that makes BTC and ETH look tame.

But the vector is identical. If Yield Units become recognized margin, collateral or hedging instruments within the broader perpetuals ecosystem, the Pendle flywheel compounds well beyond its current user base. The fee share that Boros already contributes to the protocol will look, in retrospect, like the first data point of a much longer series.