Pendle's Boros Launches Spread Markets for Perpetual Funding Rate Arbitrage

Original | Odaily Planet Daily (@OdailyChina)

Author | Azuma (@azuma_eth)

Veteran players in the cryptocurrency world have likely heard of the "Kimchi Premium."

In the early days, Bitcoin prices on Korean exchanges were significantly higher than those in overseas markets, allowing countless early participants to amass substantial profits—Sam Bankman-Fried (SBF)’s first fortune was also made this way.

However, as the market has matured and arbitrageurs have increasingly flooded in, such opportunities have gradually narrowed. Today, Boros, a funding rate trading protocol under Pendle, seeks to bring similar opportunities back to the crypto market.

On October 15, Boros officially launched Spread Markets, initially covering BTC and ETH, enabling users to trade the funding rate differential between perpetual contracts on different platforms through a single position. In its announcement, Boros prominently positioned the product as the next “kimchi premium”-level opportunity. So, how exactly do Spread Markets work? What benefits can retail users gain, and what risks must they assume?

Since perpetual contracts have no settlement date, exchanges typically use funding rates to balance the demand between long and short positions; even for the same asset, funding rates often differ across platforms.

Taking BTC as an example, suppose Exchange A’s funding rate, annualized, is 20%, while Exchange B’s is 8%. This creates a 12-percentage-point annualized rate differential—such a discrepancy may arise from differences in trader composition, market sentiment, liquidity, and each platform’s unique funding rate calculation mechanism. As long as long and short demand across the two markets is not perfectly synchronized, this spread may persist.

The presence of spreads creates arbitrage opportunities, but traditional funding rate arbitrage typically requires establishing perpetual contract positions on two separate exchanges while managing different funding rates, margin requirements, and liquidation mechanisms. If you also wish to lock in future profits, you must additionally manage the risks posed by fluctuations in funding rates.

Previously, Boros launched a product allowing users to trade individual market funding rates directly; the newly introduced Spread Markets aims to further consolidate funding rate differences across platforms into a single tradable asset.

For example, the floating fee for BTC Spread A-B is the difference between Exchange A’s BTC funding rate and Exchange B’s BTC funding rate. Users can directly go long or short this spread without needing to manually operate across platforms.

Specifically, Boros allows users to trade both long and short positions on this spread.

• Long the spread: believing that the average funding rate differential between the two markets in the future will be higher than the implied annualized rate at the time of entry;
• Short the spread: This strategy assumes that the future average funding rate differential will be lower than the current implied annualized rate; it can also be combined with positions on both sides of the perpetual contracts to lock in funding rate arbitrage profits.

Note that Boros’s position essentially involves an exchange between fixed and floating rates. Going long does not mean directly capturing the funding rate differential between two exchanges; instead, profits and losses are settled based on the actual floating rate differential relative to the rate locked in at entry. Therefore, the new product truly reduces the operational complexity of trading funding rate differentials, rather than automating all arbitrage steps into a one-click trade.

Directional fee betting

The simplest strategy is to treat the funding rate spread as an independent trading instrument.

If the current implied annualized rate for a market is 10%, and you anticipate that the average funding rate differential between two platforms will reach 20% over a certain period, going long the spread could generate positive settlement returns. Conversely, if the current implied annualized rate is 20%, but you expect the funding rate differential between the two platforms to decline to 5% as market sentiment cools, going short the spread may offer a greater advantage.

This strategy does not require holding both sides of the perpetual contracts simultaneously, so it avoids the need to take on full exposure to cryptocurrency price movements in order to capture the spread, making it relatively more capital-efficient. However, since funding rate spreads can be highly volatile, please be mindful of leverage risks when implementing this approach.

Fixed Income Arbitrage

For users who prioritize yield over betting on the direction of rates, another strategy is worth exploring.

If Exchange A’s BTC funding rate is significantly higher than Exchange B’s, users can short BTC perpetual contracts on the high-rate market and go long an equivalent amount of BTC perpetual contracts on the low-rate market to largely offset price exposure on both sides. Simultaneously, users should short the corresponding Spread Market on Boros to convert the variable funding rate differential into a fixed-rate position. The reverse strategy applies as well.

Together, these three transactions create an opportunity to lock in the rate differential between two markets. Boros’s official arbitrage tool is designed around this concept—allowing two separate rate positions in trading pairs with a Spread Market to be combined into a single spread position.

In the official promotional materials, Boros cited a potential fixed return of 25%–35%, but this figure cannot be directly interpreted as the net return achievable by ordinary users, nor can it be compared in isolation from entry fees, holding period, leverage, and costs.

For retail investors, what truly matters is not the peak annualized rate at a given moment, but whether the spread is sustainable, whether the entry price is reasonable, and how much profit remains after deducting trading costs.

High volatility: Historical data ≠ future results

Funding rates do frequently vary across different platforms, and arbitrage spreads between platforms show certain patterns over longer time periods with large sample sizes; however, historical data can only assist in judgment and cannot guarantee future settlement outcomes.

Changes in market sentiment, shifts in trader positions, or a sudden surge of longs or shorts on a single platform can cause significant fluctuations in funding rates. Previously favorable spreads may rapidly widen or narrow, or even turn negative, directly impacting the outcomes of long or short strategies.

Underlying platform risks still exist.

Packaging the cross-platform arbitrage strategy as a single spread trade reduces the complexity of managing multiple funding rate positions, but does not eliminate the underlying risks. The entire strategy still depends on the funding rate settlements of the related exchanges, as well as Boros’s own liquidity, settlement, and clearing mechanisms.

If an underlying exchange experiences abnormal volatility, liquidity depletion, or trading disruption, the arbitrage portfolio may fail to adjust in a timely manner. Even if the price exposure of the underlying assets has been theoretically hedged, this does not mean that actual risks are fully offset; under extreme market conditions, issues such as liquidation of single-leg positions or price discrepancies across platforms could subject the portfolio to additional losses.

There is a maximum capacity limit.

Boros has turned cross-platform funding rate spreads into more tradable assets, but such opportunities are not infinitely available.

As more traders enter the same market, arbitrage capital gradually narrows the existing fee differential—the so-called premium narrowing, as Boros described. As the spread tightens, the potential returns available to new entrants also decrease.

In summary, Boros’s Spread Markets offer a more direct way to trade funding rate arbitrage by isolating the rate differential between two markets, reducing the complexity of managing multiple funding positions, improving capital efficiency, and providing new tools for directly trading spreads and building fixed-income strategies.

However, simplifying the tool does not mean the strategy itself has become simpler. What truly determines returns remains the entry fee level, the sustainability of the spread, trading costs, and comprehensive position risk management.

For ordinary traders, before rushing to chase advertised high annual yields, it’s essential to first gain hands-on experience with traditional cross-market arbitrage strategies and then build upon them.