Frax Ether
Frax Ether is designed to uniquely leverage the Frax ecosystem to maximize staking yield and smoothen the Ethereum staking process for a simplified way to earn interest on ETH.
- Documentation
- Auditors
- Please see our FAQ on experienced auditors
- Website
- Token: FXS
- Tags: Staking
- TVL: $638.4M (Rank #34)
- TVL Ranking by Staking: #0
- Blockchain: Ethereum
- Chain TVL
- Ethereum: $638.36M
- Code reviewed by at least one experienced auditor; code4rena audited in November 2022
- Public team promotes accountability
- No documented protocol hacks since launch
- Latest protocol version launched in 2022; maturity over one year minimizes technical risk as smart contracts are well battle-tested
- Top 20% by total value locked slightly reduces risk
- Multisig wallet controls protocol upgrades
- Multisig consists of less than 4 signers, which makes the protocol more susceptible to centralization risks
- Timelock is at least 48hrs, which provides users with sufficient time to exit if any malicious upgrades are approved
- Low voting power concentration reduces risk
- No death spiral concerns
- This protocol is susceptible to risks related to staking a token to secure a network, such as slashing events
How Frax Ether works
The Frax Ether system consists of three core components: frxETH, sfrxETH, and the Frax ETH minter. frxETH acts as a stablecoin that is soft-pegged to ETH. 1 frxETH always equals 1 ETH as the amount of frxETH in circulation matches the amount of ETH staked in Frax. When users deposit ETH into Frax, an equivalent amount of frxETH is minted. Holding frxETH is analogous to holding WETH as it is not eligible for staking yield on its own. Instead, users can choose to deploy their frxETH to third-party strategies like Curve to earn trading fees. The underlying code for frxETH is largely forked from both the FRAX and FPI stablecoins. sfrxETH is the staked version of frxETH that accrues staking yield. All profit generated from Frax ETH validators including staking rewards, transaction fees, and MEV (maximal extractable value), are distributed to sfrxETH holders. Users can exchange their frxETH for sfrxETH at any time by depositing into the sfrxETH vault. As validators accrue staking yield over time, an equivalent amount of frxETH is minted and added to the vault. sfrxETH holders can redeem their staking rewards by converting back to frxETH. The exchange rate of frxETH to sfrxETH thus increases over time as staking rewards are distributed to the vault. Holding sfrxETH entitles you to a proportional claim on an increasing amount of frxETH. The Frax ETH minter contract mints frxETH when it receives ETH deposits. Whenever a deposit pushes the minter balance over 32 ETH, the contract automatically spins up a new validator.
How Frax Ether makes money
The protocol fee structure 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 8% distributed to the protocol treasury in the form of frxETH will ultimately be distributed back to FXS holders. The 2% that goes to the insurance fund will be used to cover any potential slashing events to effectively keep frxETH overcollateralized.
How you make money on Frax Ether
You can start earning yield by staking your ETH on Frax to receive frxETH. After staking, you have two choices: 1) stake frxETH to receive sfrxETH for ETH staking rewards, or 2) deposit your frxETH into the frxETH-ETH Curve liquidity pool to earn trading fees and CRV protocol incentives.
