Frax Staked Ether is a liquid staking derivative stablecoin by Frax Finance. sfrxETH is the staked version of frxETH designed to accrue the staking yield of the Frax ETH validators. The exchange rate of frxETH per sfrxETH increases over time as staking rewards accrue to the vault.

Overview

The Frax Ether system comprises three primary components, Frax Ether (frxETH), Staked Frax Ether (sfrxETH), and the Frax ETH Minter:

1. frxETH acts as a stablecoin loosely pegged to ETH, leveraging Frax's winning playbook on stablecoins and onboarding ETH into the Frax ecosystem.
2. sfrxETH is the version of frxETH that accrues staking yield. All profit generated from Frax Ether validators is distributed to sfrxETH holders. By exchanging frxETH for sfrxETH, one becomes eligible for staking yield, which is redeemed upon converting sfrxETH back to frxETH.
3. Frax ETH Minter (frxETHMinter) allows the exchange of ETH for frxETH, bringing ETH into the Frax ecosystem, spinning up new validator nodes when able, and minting new frxETH equal to the amount of ETH sent. ^[2]

Liquid Staking

Solo ETH staking requires the technical knowledge and initial setup associated with running a validator node, and also that deposits be made 32 ETH at a time. By opting to use a liquid ETH staking derivative instead of staking ETH in another form, staking yield can be accrued much more simply, abstracting the need to run validators, allowing yield to be earned on any amount of ETH, allowing withdrawals at any time and of any size, and allowing far greater composability throughout DeFi.

frxETH and sfrxETH

ETH in the Frax ecosystem comes in two forms, frxETH (Frax Ether), and sfrxETH (Staked Frax Ether).

frxETH

frxETH acts as a stablecoin loosely pegged to ETH, so that 1 frxETH always represents 1 ETH and 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 is not eligible for staking yield and should be thought of as analogous as holding ETH.

sfrxETH

sfrxETH is a ERC-4626 vault designed to accrue the staking yield of the Frax ETH validators. At any time, frxETH can be exchanged for sfrxETH by depositing it into the sfrxETH vault, which allows users to earn staking yield on their frxETH. Over time, 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 deposited.

Technical Specifications

frxETH: frxETH shares much of its code with both the Frax and FPI stablecoins, and implements the ERC-2612 standard, allowing spender approvals to be made via ERC-712 signatures passed to the permit() function.

sfrxETH: sfrxETH is an ERC-4626-compliant vault. sfrxETH is obtained by first approving the sfrxETH contract as a frxETH spender, and then calling mint() (mints a specific number of sfrxETH) or deposit() (deposits a specific amount of frxETH). The approval step and the minting step can be combined with depositWithSignature() or mintWithSignature(), removing the need for two separate transactions.

As validators generate staking yield, an equivalent amount of frxETH is minted and sent to the sfrxETH contract. This means that once rewards are synced, one's sfrxETH may be redeemed for a greater amount of frxETH than it took to mint.

To prevent malicious users from stealing a validator yield distribution to the vault, reward distributions are smoothed over time cycles. Whenever syncRewards() is called on the sfrxETH contract, any additional frxETH added to the contract over the contract's internal balance is queued to be distributed linearly over the remainder of a cycle window.

sfrxETH is also ERC-2612 compliant, allowing the use of signature permits.

frxETHMinter: The frxETHMinter mints frxETH when it receives ETH either through the submit() or receive() function. Whenever a submission pushes the minter balance over 32 ETH, the contract pops a validator's deposit credentials off of a stack and passes the 32 ETH deposit along with the credentials to the ETH 2.0 deposit contract, automatically spinning up a new validator.

As needed, new credentials are added to the stack to ensure that there are always validators ready to take deposits. If at any time the contract runs out of validators, frxETH will continue to be minted as normal (unless paused) but no new validators will be spun up until more are added to the stack.
The withdrawal credential is shared by all the validators on the stack, meaning all validators share the same withdrawal address. This address is set to the Frax Multisig at launch, so that withdrawals may be safely handled once live.

In addition, when adding validators it is necessary to pass the DepositDataRoot as provided when generating the deposit data, this is to provide redundancy in ensuring a validator with wrong parameters will not be accepted when ETH is deposited.