Staked Frax USD (sfrxUSD) is an ERC-4626 yielding stablecoin that allows holders to earn yield on their frxUSD deposits while maintaining full redeemability at an increasing rate proportional to the yield mechanism.

Overview

Staked Frax USD (sfrxUSD) functions as the yield-bearing version of frxUSD within the Frax Finance ecosystem. Unlike traditional rebasing tokens, sfrxUSD maintains a constant token count while the redemption value against the underlying frxUSD increases over time as yield accrues. This design allows users to stake their frxUSD and earn competitive yields without having to manage multiple positions or constantly rebalance their portfolios ^[1].

The token operates as a fully ERC4626-compliant vault, making it compatible with various DeFi protocols and applications. Users can redeem their sfrxUSD for the underlying frxUSD at any time without unstaking fees or price impact, providing both yield generation and liquidity ^[2].

Key Features

Benchmark Yield Strategy (BYS)

The core innovation of sfrxUSD is its Benchmark Yield Strategy, which dynamically allocates staked frxUSD to the highest-yielding venue among three governance-approved strategies:

1. Carry-trade strategies - When carry-trade yields outperform other options, the protocol allocates funds accordingly
2. Algorithmic Market Operations (AMOs) - When DeFi yields are superior, funds are directed to various DeFi protocols through AMOs
3. Interest on Reserve Balances/T-Bill (IORB) rate - When traditional finance yields are highest, funds are allocated to RWA strategies holding short-dated (<90 days) United States Treasury Bills ^[2]

This adaptive allocation mechanism ensures that sfrxUSD holders consistently earn the highest risk-adjusted yield available in the market without having to manually move between different yield-generating stablecoins ^[3].

Non-Rebasing Design

Unlike some yield-bearing tokens that implement a rebasing mechanism (where token balances change in wallets), sfrxUSD maintains a constant token count while the exchange rate between sfrxUSD and frxUSD increases over time. This design offers several advantages:

• Simplified accounting for users and protocols
• Better compatibility with DeFi protocols that aren't designed to handle rebasing tokens
• Predictable behavior for smart contract interactions ^[1]

Full Redeemability

sfrxUSD can always be redeemed for the underlying frxUSD at the current exchange rate with:

• No unstaking fee
• No price impact
• No lockup period ^[2]

Role in the Frax Ecosystem

sfrxUSD plays an important role in the broader Frax Finance ecosystem by:

1. Providing a yield-bearing option for frxUSD holders
2. Enhancing the utility of frxUSD as a stablecoin
3. Creating additional demand for frxUSD through yield opportunities
4. Supporting the overall stability and growth of the Frax ecosystem ^[3]

The token is part of Frax's expanding suite of financial products, which includes frxETH (a liquid staking derivative for Ethereum), FXS (the governance token), and various AMOs designed to generate yield and maintain stability.