Borrow Rate Perpetuals
This perpetual contract is designed to replicate the cumulative borrowing cost of a reference Aave variable-rate loan, allowing traders to hedge interest rate risk or speculate on DeFi borrow conditions.
| Characteristic | Description |
| What it Tracks | The cumulative interest accrual of a variable-rate loan on Aave, represented by a borrow multiplier index. |
| Index Definition | A borrow multiplier index, Jt, that grows based on the instantaneous Aave borrow rate, rt. It is defined as: J_t = \exp\left(\int_0^t \frac{r_s}{Y} ds\right) where Y is the number of seconds in a year. This index represents the total growth factor of a loan's principal due to interest. |
| Oracle Type | A 24/7 on-chain oracle that reads the live variable borrow rate for a given asset directly from the Aave v2/v3 protocol pools or uses a smoothed nowcast of this rate. |
| Market Type | Cash-settled index perpetual. |
| PnL Formula | The PnL for a position with notional N is designed to perfectly match the interest accrued on an Aave loan of the same initial notional. The infinitesimal PnL is given by PnLt = NdJt. Over a period [0, T], the total PnL is: • PNL (Long) = N x (JT - 1) • PNL (Short) = N x (1 - JT) Where: • N: The USD notional value of your position. • JT: The value of the borrow multiplier index at the end of the period. |
| Use Cases | Hedging (Long): • Borrowers on Aave can take a long position of the same notional value to perfectly neutralize the variable interest cost of their loan. Directional Trades: • Go long to speculate on rising Aave borrow rates (e.g., during periods of high utilization). • Go short to speculate on falling Aave borrow rates. Arbitrage: • Trade the spread between Aave borrow costs and funding rates on other perpetual exchanges. |
| Users | • DeFi borrowers & lenders • Relative-value & arbitrage funds • Macro traders speculating on on-chain rates • DAOs managing treasury debt |
| Vol-stat (σ) | Low-to-Medium. Aave borrow rates are generally less volatile than crypto asset prices but can experience sharp spikes during periods of high market stress and borrowing demand. |
| Margin Numbers | Derived from the max leverage tiers. For the initial leverage tier, the initial margin (IM) is a percentage of the notional position value (e.g., 33.3% for 3x leverage). |