This episode reveals Pendle's two-pronged strategy for dominating yield markets: scaling its V2 protocol through deep DeFi integrations while cautiously launching Boros to capture the multi-billion dollar funding rates market with a capital-efficient, margin-based model.
Introduction to Pendle’s Dual-Product Ecosystem
- Pendle V2: The core product that enables the tokenization and trading of yield, popularizing yield and points trading through partnerships with protocols like Ethena and EigenLayer.
- Boros: A new protocol for trading yield with margin. Its first use case targets the funding rates for BTC and ETH markets on Binance. Funding Rates are periodic payments exchanged between traders in perpetual futures markets to keep the contract price aligned with the underlying asset's spot price.
The Boros Launch: Exceeding Initial Expectations
- The initial open interest cap of $20 million ($10 million for each of the BTC and ETH markets) was filled in just one day, far quicker than the projected one-week timeline.
- Within five days, open interest grew to over $27 million, with notional trading volume surpassing $19 million.
- Leverage started at a conservative 1.2x and was quickly raised to 1.4x, with TN expressing a long-term vision for much higher leverage (20-50x) once the system is proven.
- TN emphasizes a safety-first approach: “We are not too focused on growth; we are making sure that the product is safe and sound first and foremost before we want to scale up.”
Risk Management and Scaling Strategy
- Strategic Consideration: The team is stress-testing the system against extreme volatility, such as a 10x move in implied rates (e.g., from 7% to 70%), to prevent bad debt scenarios.
- Scaling will be methodical, based on observing the system's resilience during volatile market events rather than hitting predefined KPIs.
- Future market additions (e.g., new assets, exchanges) will depend on the liquidity and reliability of the underlying oracle feeds to mitigate manipulation risks.
Onboarding Market Makers and Early Users
- Institutional Onboarding: The process involved pitching the concept to major market makers like Wintermute and GSR, eventually securing Kaledan as a day-one liquidity partner after months of collaboration and stress testing.
- Community Onboarding: A phased beta access program began in April, starting with the internal team, then expanding to active Pendle community members, and finally to KOLs and friendly funds. This ensured a base of educated users was ready at launch.
Boros as a Hedging Tool for Ethena and Beyond
- Actionable Insight: Protocols like Ethena can use Boros to short funding rates, effectively locking in a predictable yield and making their offerings (like USDe's APY) more resilient to market fluctuations.
- This could solve a key pain point observed during low-activity periods (e.g., May-June) when Ethena's yield dropped significantly.
- The team also discussed potential future integrations where users on platforms like Hyperliquid could directly hedge their funding rate exposure through a Boros-powered front-end.
Technical Architecture and Future Integrations
- Boros is deployed on Arbitrum but can support rates from any source, including other chains like Hyperliquid's EVM or even off-chain traditional finance rates.
- TN confirms that Boros could theoretically support markets for variable borrowing/lending rates from protocols like Aave, provided there is sufficient demand and a reliable oracle.
- Future Vision: The roadmap includes expanding to non-crypto rates, such as LIBOR, positioning Boros as a universal rate trading engine.
Passive Liquidity Vaults and Monetization
- The vaults function similarly to a Uniswap V2 pool, providing liquidity across a wide price range to ensure trades can always be executed, albeit with potential for impermanent loss.
- Revenue Streams:
- Swap Fees: A 5 basis point (0.05%) fee for takers (makers pay 0%).
- Settlement Fees: A 0.2% fee charged on the notional open interest for both long and short positions at settlement.
Pendle V2: The Ethena-Aave Flywheel
- The listing of Ethena's Principal Token (PT-USDe) on Aave was a major breakthrough, making it the fastest market on Aave to reach $1 billion in TVL (in approximately one week).
- This integration created a powerful incentive loop, driving demand for PTs and significantly improving the "stickiness" of Pendle's TVL.
- Following a major maturity event on July 31st, the protocol saw only ~$200 million in outflows from a multi-billion dollar pool before hitting a new all-time high in liquidity, demonstrating the effectiveness of this strategy.
Future Roadmap and Tokenomics
- Pendle V2 Roadmap: Focus on institutional instances (part of the "Citadel" initiative) and cross-chain PT bridging to expand utility.
- Boros Roadmap: The immediate priority is ensuring security and finding product-market fit. Future expansion includes supporting more exchanges, staking yields (e.g., ETH, SOL), and borrowing rates from money markets.
- When asked about Pendle's VE tokenomics, TN candidly states, “The short answer is maybe not,” suggesting a simpler model might be preferable if redesigned today, but confirming any changes are a lower priority than current product development.
Conclusion
This episode highlights Pendle's strategic expansion from a single-product protocol to a dual-pronged yield powerhouse. Investors should monitor Boros's risk management milestones—like leverage increases—as key indicators of product maturity, while tracking V2's continued integration into major DeFi money markets as a primary driver of sustainable growth.
