Frax Staked Ether

Frax Staked Ether (sfrxETH) is a liquid staking derivative stablecoin by Frax Finance. It was introduced as part of the Frax Ether system, which includes Frax Ether (frxETH) and the Frax ETH Minter. The Frax Ether system was launched by Frax Finance at the end of 2022, with the goal of maximizing staking yields and simplifying the Ethereum staking process.

sfrxETH is designed to accrue the staking yield of the Frax ETH validators. Users can earn staking yield by exchanging frxETH for sfrxETH, which is deposited into the sfrxETH vault. As validators accrue staking yield, an equivalent amount of frxETH is minted and added to the vault, allowing users to redeem their sfrxETH for a greater amount of frxETH than they initially deposited.

The Frax Ether system, including sfrxETH, is designed to be secure, decentralized, and flexible, allowing for withdrawals at any time and of any size. It also enables greater composability throughout DeFi, making it more accessible and user-friendly compared to traditional ETH staking.

Since its launch, the Frax Ether system has grown significantly, with over 227,000 ETH staked in frxETH and more than 6,100 active Frax validators. It has become the third-largest liquid staking derivative (LSD) protocol, behind Lido and Rocket Pool.

Frax Staked Ether (sfrxETH) is a liquid staking derivative designed to enhance the staking yield and simplify the process of earning interest on Ethereum (ETH). It operates within the Frax Finance ecosystem, which combines the benefits of stable assets with the power and flexibility of the Ethereum network.

1. frxETH (Frax Ether):

   • Acts as a stablecoin loosely pegged to ETH, ensuring that 1 frxETH always represents 1 ETH.
   • The amount of frxETH in circulation matches the amount of ETH in the Frax ETH system.
   • When ETH is sent to the frxETHMinter, an equivalent amount of frxETH is minted.
   • Holding frxETH on its own does not generate staking yield and is similar to holding ETH.

2. sfrxETH (Staked Frax Ether):

   • An ERC-4626 vault designed to accrue the staking yield of the Frax ETH validators.
   • Users can exchange frxETH for sfrxETH by depositing it into the sfrxETH vault.
   • As validators earn staking yield, an equivalent amount of frxETH is minted and added to the vault.
   • Users can redeem their sfrxETH for a greater amount of frxETH than they initially deposited.

3. Frax ETH Minter (frxETHMinter):

• Mints frxETH when it receives ETH deposits.
• Automatically spins up new validators when the minter balance exceeds 32 ETH.

• The exchange rate of frxETH per sfrxETH increases over time as staking rewards are added to the vault.
• By holding sfrxETH, users hold a proportional claim on an increasing amount of the vault's frxETH, splitting staking rewards among sfrxETH holders based on their share.
• This process is similar to other auto-compounding tokens like aUSDC and cUSDC.

• The protocol allocates 90% of all staking yield to sfrxETH stakers in the form of frxETH.
• The remaining 10% is split between the Frax protocol treasury (8%) and a slashing insurance fund (2%).
• The treasury allocation is ultimately distributed back to FXS holders, while the insurance fund covers potential slashing events to keep frxETH overcollateralized.

• Users can start earning yield by staking their ETH on Frax to receive frxETH.
• After staking, they can either stake frxETH to receive sfrxETH for ETH staking rewards or deposit their frxETH into the frxETH-ETH Curve liquidity pool to earn trading fees and CRV protocol incentives.

Overall, Frax Staked Ether (sfrxETH) provides a convenient and profitable way to earn staking yield on Ethereum while leveraging the Frax Finance ecosystem for stability and efficiency.

Frax Staked Ether (sfrxETH) has several strengths:

1. Accrues Staking Yield: sfrxETH is designed to accrue staking yield from Frax ETH validators, allowing users to earn interest on their ETH without the need to run validator nodes.

2. ERC-4626 Compliance: sfrxETH is an ERC-4626 compliant vault, which ensures that it follows a standardized protocol for tokenized vaults and allows for seamless integration with other DeFi applications.

3. Auto-Compounding: The vault's design allows for auto-compounding of staking rewards, similar to other tokens like aUSDC and cUSDC. This means that users can redeem sfrxETH for a greater amount of frxETH than they originally deposited, as staking rewards are added to the vault over time.

4. Proportional Share in Rewards: Holding sfrxETH gives users a proportional share in the vault's frxETH and staking rewards, ensuring that rewards are distributed fairly among all sfrxETH holders.

5. Flexibility and Accessibility: sfrxETH allows users to earn staking yield without the need to run validator nodes or lock up large amounts of ETH. This makes it more accessible and flexible compared to traditional staking methods.

6. Security: The Frax protocol has measures in place to prevent malicious users from stealing from the vault, ensuring that rewards are distributed securely and fairly.

Overall, sfrxETH offers a convenient and secure way to earn staking yield on ETH, making it an attractive option for those looking to maximize their returns in the DeFi space.

Frax Staked Ether (sfrxETH) carries several risks:

1. Underlying Risks of Frax Ether: sfrxETH is exposed to the risks associated with Frax Ether, which is rated as Average. This includes the potential for frxETH to depeg from ETH due to market conditions.

2. Slashing Events: The protocol has a 2% fee allocated to a slashing insurance fund to cover potential slashing events. This fund ensures that frxETH remains overcollateralized.

3. Inflation Control: sfrxETH has an uncapped supply but has inflation control or burn mechanisms in place. This could impact the token's value over time.

4. Dependence on Frax Ecosystem: sfrxETH's value and functionality are closely tied to the Frax ecosystem, which includes the Frax Ether system and the Frax protocol treasury. Any issues with the Frax ecosystem could affect sfrxETH.

5. Smart Contract Risks: The sfrxETH contract is a complex system that relies on multiple components, including the Frax ETH minter and the sfrxETH vault. Any vulnerabilities or bugs in these contracts could lead to losses or disruptions.

6. Market Volatility: As a staking derivative, sfrxETH's value is influenced by the performance of the Ethereum network and the broader cryptocurrency market. Market fluctuations can impact the token's value and yield.

These risks highlight the importance of carefully understanding the Frax Ether system and its components before investing in sfrxETH.

• Sam Kazemian: Co-Founder and Core Team Member.
• Travis Moore: Co-Founder and Core Team Member.
• Drake Evans: Core Team Member.
• Justin Moore: Core Team Member.
• Dennis: Core Team Member.
• Alex: Core Team Member.
• Nader Ghazvini: Core Team Member and Head of Governance and Integration.