Frax EtherPrice

(FRXETH)

Frax Ether (frxETH) is a liquid ETH staking derivative and stablecoin system developed by Frax Finance. It aims to simplify the Ethereum staking process for users and maximize staking yields. frxETH is designed to be loosely pegged 1:1 with ETH, representing the ETH staked within the system, thereby offering a liquid representation of staked Ethereum.

When users deposit ETH into the Frax Ether system, an equivalent amount of frxETH is minted to them. frxETH is designed to maintain a loose 1:1 peg with ETH, meaning one frxETH always represents one ETH. The total frxETH in circulation directly corresponds to the amount of ETH staked within the system. The Frax ETH Minter facilitates this exchange and automatically initiates new validators when sufficient ETH is deposited.

The Frax Ether system uses a two-token model: frxETH and sfrxETH. frxETH is pegged 1:1 to ETH and serves as a base token and entry point, but it does not directly accrue staking yield. To earn staking rewards, users must convert their frxETH into sfrxETH (Staked Frax Ether). sfrxETH is an ERC-4626 vault that continuously accrues the staking yield generated by Frax ETH validators, with its exchange rate against frxETH increasing over time.

Staking rewards are generated by Frax Ether validators, comprising ETH staking rewards, transaction fees, and maximal extractable value (MEV). All profits are primarily distributed to sfrxETH holders. A 10% protocol fee is applied to these rewards, with 8% directed to the Frax protocol treasury (ultimately benefiting FXS holders) and the remaining 2% allocated to an insurance fund. This fund is established to mitigate potential losses from slashing events.

Potential risks include centralization, as a multisig with fewer than four signers controls protocol upgrades, creating a point of susceptibility. There's also a risk of "bad debt" if algorithmic market operations lead to negative slippage in liquidity pools. While frxETH aims for a 1:1 peg, slight over-minting can occur. Furthermore, like any liquid staking derivative, it is exposed to slashing events, though an insurance fund is in place to help cover such occurrences.

Frax Ether distinguishes itself through its unique two-token model. Unlike some other liquid staking solutions where a single token directly accrues rewards, Frax separates frxETH (non-yield bearing, pegged 1:1 to ETH) from sfrxETH (yield-bearing). This separation allows sfrxETH to potentially offer higher effective yields. By concentrating the staking rewards within a smaller pool of sfrxETH, the yield per token can be amplified for holders, compared to models where rewards are distributed across all circulating tokens.