Frax Ether (FRXETH) Explained - How the Liquid Staking Token Works

Frax Ether (FRXETH) Explained - How the Liquid Staking Token Works
21 Comments

FRXETH Yield Calculator

ETH
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frxETH (Liquid ETH)

Represents 1:1 ETH with liquidity. Does not earn staking rewards.

  • Exchange Rate 1.00
  • Uses DeFi Integration

sfrxETH (Auto-Compounding Yield)

Earns staking rewards automatically compounded.

  • Exchange Rate 1.00+
  • Yield Type Auto-Compounding
Fee Breakdown

Protocol charges 10% fee on yield:
8% to Treasury | 2% to Insurance Fund

Projected Earnings Summary

Initial Investment:

0 ETH

Total Yield Earned:

0 ETH

Protocol Fees Paid:

0 ETH

Net Earnings:

0 ETH

Final frxETH Amount:

0 frxETH

Final sfrxETH Amount:

0 sfrxETH
Exchange Rate Growth:
Exchange rate increases over time due to compounding rewards

When you hear the term FRXETH, you’re looking at a token that lets you earn staking rewards on Ethereum without locking your funds for years. Frax Ether bridges the gap between traditional ETH staking and the fast‑moving DeFi world, giving you instant liquidity, auto‑compounding yields, and a safety net through the Frax Finance ecosystem.

Key Takeaways

  • FRXETH is a liquid staking derivative that represents 1ETH on a 1:1 basis.
  • Two tokens run the system: frxETH - a stable‑coin‑like token pegged to ETH, and sfrxETH - an ERC‑4626 vault token that auto‑compounds staking rewards.
  • Staking yields come from validator rewards, transaction fees, and MEV, all funneled into sfrxETH holders.
  • The protocol charges a 10% fee (8% protocol, 2% insurance fund) and is audited by Certik and Trail of Bits.
  • FRXETH sits alongside other liquid staking tokens (stETH, rETH) but offers unique flexibility through the broader Frax ecosystem.

What is Frax Ether?

Frax Ether (FRXETH) is a liquid staking derivative created by Frax Finance. Launched in late 2022, it tokenizes ETH that’s been deposited into Ethereum 2.0 validators. The token gives you immediate liquidity while the underlying ETH earns the usual 5‑6% annual staking reward plus extra MEV income.

The system revolves around three core components:

  1. frxETH - a 1:1 peg to ETH, acting like wrapped ETH (WETH) but with a built‑in peg‑defense band of 0.99‑1.01.
  2. sfrxETH - an ERC‑4626 vault token that automatically compounds all validator yields.
  3. The Frax ETH Minter contract, which swaps native ETH for frxETH and spins up new validator nodes when the minter balance hits 32ETH.

How the Two‑Token Model Works

When you deposit ETH into the Frax Ether Minter, you receive frxETH at a 1:1 rate. Holding frxETH alone gives you a liquid version of ETH but no staking rewards - similar to holding WETH. To start earning, you move your frxETH into the sfrxETH vault. The vault’s exchange rate (frxETH per sfrxETH) rises over time as staking rewards, fees, and MEV are added to the pool.

For example, if the exchange rate starts at 1.00, after a month of successful validation it might be 1.04. A holder of 1sfrxETH can then redeem it for 1.04frxETH, effectively cashing in the accumulated yield. This auto‑compounding mechanism means you never need to claim rewards manually; the vault does it for you.

Sketch of a modular device illustrating ETH to frxETH to sfrxETH conversion with arrows and gears.

Fees, Security, and Risk Management

The protocol takes a flat 10% fee on the total yield generated by validators. Eight percent of that goes to the Frax Finance treasury, while the remaining 2% feeds an insurance fund designed to protect against slashing events or validator downtime. This fee structure is outlined in the code and reinforced by third‑party audits from Certik and Trail of Bits. Both firms confirmed that the smart contracts follow best‑in‑class security practices and that the insurance fund is correctly isolated from user balances.

Because frxETH’s peg is maintained independently of Frax’s stablecoin balance sheets, a market shock that hits FRAX or FPI won’t directly affect FRXETH’s 1:1 relationship with ETH. The system’s design thus isolates liquidity risk while still benefiting from Frax’s proven stablecoin engineering.

Comparing FRXETH to Other Liquid Staking Tokens

Liquid Staking Token Comparison
Metric FRXETH (Frax) stETH (Lido) rETH (Rocket Pool)
Primary Token frxETH (liquid), sfrxETH (yield) stETH (auto‑yield) rETH (auto‑yield)
Yield Source Validator rewards + MEV + fees (auto‑compounded) Validator rewards + fees (auto‑compounded) Validator rewards + fees (auto‑compounded)
Fee Structure 10% of yield (8% protocol, 2% insurance) ~10% of yield (Lido fee) ~15% of yield (rocket pool & node operator fees)
Peg Stability 1:1 ±1% band, independent of FRAX stablecoin 1:1 (subject to Lido’s custodial model) 1:1 (subject to node operator risk)
Insurance 2% fund, audited by Certik & Trail of Bits None (reliant on Lido’s DAO governance) Partial (rocket pool’s reserve pool)
Integration with DeFi Deep Frax ecosystem (stablecoins, yield farms) Broad DEX support, but less Frax‑specific composability Supports Rocket Pool’s own vaults and some DEXes

FRXETH’s dual‑token design offers a unique choice: keep frxETH for pure ETH exposure or convert to sfrxETH for hassle‑free auto‑compounding. This flexibility is less common in stETH or rETH, where the single token already yields rewards.

How to Get Started with FRXETH

  1. Connect a Web3 wallet (MetaMask, Ledger, etc.) to a supported interface like Frax Finance’s official UI.
  2. Deposit the amount of ETH you wish to stake. The Minter contract instantly mints the same amount of frxETH.
  3. If you want to earn rewards, click “Stake frxETH”. The platform moves your tokens into the sfrxETH vault.
  4. Watch the exchange rate climb. When you’re ready, redeem sfrxETH for a larger amount of frxETH, then withdraw to native ETH if you need cash.

All steps are gas‑efficient because the Minter only triggers a validator spin‑up when the total balance reaches a new 32‑ETH threshold. This batching reduces transaction costs compared to individually creating validators.

Product sketch of FRXETH ecosystem hub with connected modules for liquidity, vault, insurance and DeFi.

Potential Pitfalls and What to Watch

  • Understanding the two‑token flow: New users sometimes mistake frxETH for a yield‑bearing token. Remember, you need to convert to sfrxETH to capture rewards.
  • Fee impact on small balances: The 10% yield fee can eat into returns if you stake only a few ETH for a short period.
  • Validator risk: Although the insurance fund mitigates slashing, extreme network events could still affect the overall yield.
  • Liquidity considerations: While frxETH trades on major DEXes, large withdrawals may experience temporary slippage during peak market stress.

Future Outlook for Frax Ether

Frax Finance’s roadmap shows plans to integrate frxETH more tightly with its own stablecoins (FRAX, FPI) and to launch multi‑asset vaults that combine frxETH with other high‑yield strategies. As Ethereum moves toward full proof‑of‑stake finality with Shanghai and subsequent upgrades, the demand for liquid staking solutions like FRXETH is expected to grow. The protocol’s proven audit track record and its insurance fund give it a competitive edge in a space where security scares can quickly shift user preference.

Frequently Asked Questions

What’s the difference between frxETH and sfrxETH?

frxETH is a 1‑to‑1 liquid representation of ETH; it does not earn staking rewards. sfrxETH is an ERC‑4626 vault token that automatically compounds all rewards earned by the underlying staked ETH. To earn yield, you must move frxETH into the sfrxETH vault.

How is the frxETH peg maintained?

The peg stays within a 0.99‑1.01 band. If the market price drifts, arbitrage bots can swap frxETH for ETH (or vice‑versa) via the Minter contract, pulling the price back toward 1ETH per frxETH.

What fees does Frax Ether charge?

A 10% fee on all generated yield: 8% goes to the Frax Finance treasury and 2% is allocated to an insurance fund that backs against slashing or validator failures.

Is FRXETH audited?

Yes. Independent security firms Certik and Trail of Bits have audited the core contracts, confirming that the architecture follows best‑practice standards and that the insurance fund is correctly isolated.

Can I use frxETH in other DeFi protocols?

Absolutely. Since frxETH behaves like wrapped ETH, you can supply it to Curve, Aave, or Uniswap for additional yield or liquidity. Just remember it won’t earn the native staking reward unless you convert it to sfrxETH first.

Michael Phillips
Michael Phillips 7 Oct

FRXETH essentially tokenizes staked ETH so you can keep liquidity while still participating in the network’s security.

Caleb Shepherd
Caleb Shepherd 7 Oct

Sure, the 10% protocol fee looks fine on paper, but who's really watching the treasury and insurance fund? It could be a hidden backdoor.

Dawn van der Helm
Dawn van der Helm 7 Oct

Cool breakdown! 😊 The auto‑compounding sfrxETH makes it easy for newbies to just set and forget.

Monafo Janssen
Monafo Janssen 7 Oct

Think of FRXETH like a liquid version of your ETH stake – you can swap it anytime, just like any other ERC‑20.

Bryan Alexander
Bryan Alexander 7 Oct

Wow, that means you get the best of both worlds – the safety of staking and the freedom of DeFi!

Liam Wells
Liam Wells 7 Oct

It must be noted, dear readers, that the fee‑structure, though transparent, could conceivably be adjusted without on‑chain governance, thereby altering expected returns in a manner most unforeseen.

Nicholas Kulick
Nicholas Kulick 7 Oct

For anyone calculating yields, remember to subtract the 10% fee from the gross reward to get the net APY.

Jason Wuchenich
Jason Wuchenich 7 Oct

Good tip, Nicholas! Also, keep an eye on the protocol’s governance proposals – they can impact the fee split.

Mark Bosky
Mark Bosky 7 Oct

From a formal perspective, the issuance of frxETH at a 1:1 ratio with ETH is a straightforward mechanism, yet the absence of direct reward accrual necessitates careful portfolio planning.

Debra Sears
Debra Sears 7 Oct

I appreciate the clarity, Mark. It’s also worth noting that composability with other DeFi protocols can enhance overall returns.

Melanie LeBlanc
Melanie LeBlanc 7 Oct

Love how the UI makes the calculations easy! 🎉 It really helps visualize the compounding effect over multiple months.

Don Price
Don Price 7 Oct

Let me lay it out step by step, because the interaction between frxETH and sfrxETH is more nuanced than it appears at first glance. First, frxETH is a 1:1 representation of ETH that retains liquidity, meaning you can move it around without waiting for withdrawal periods. However, frxETH itself does not earn staking rewards; that function is delegated to sfrxETH, which automatically compounds the yield. Second, the conversion from frxETH to sfrxETH essentially locks your liquidity into a yield‑generating contract, and the exchange rate of sfrxETH will gradually rise above 1.00 as rewards accumulate. Third, the protocol charges a 10% fee on the generated yield, split between the treasury (8%) and an insurance fund (2%). While this fee may look modest, it reduces the effective APY you receive, so you must factor it into your net return calculations. Fourth, the auto‑compounding nature of sfrxETH eliminates the need for manual reinvestment, which can be advantageous for users who want a hands‑off approach. Fifth, because sfrxETH is an ERC‑20 token, you can still use it in other DeFi applications, but you must be mindful of smart contract risk when nesting it within additional protocols. Sixth, the liquidity of frxETH helps to mitigate the typical lock‑up periods seen in traditional staking, giving you more flexibility to respond to market movements. Seventh, if the underlying ETH price drops significantly, the value of both frxETH and sfrxETH will follow, but the relative yield still provides a cushion against pure price depreciation. Eighth, the protocol’s governance model allows token holders to propose fee adjustments, which could alter the economics over time. Ninth, it is essential to monitor the health of the insurance fund, as it serves as a safety net against potential slashing events or protocol bugs. Tenth, the user interface you’re looking at right now provides a handy calculator, but always double‑check the numbers against the actual smart contract state. Eleventh, consider the tax implications; staking rewards are often treated as ordinary income in many jurisdictions. Twelfth, remember that your net earnings after fees and taxes might differ from the headline APY. Thirteenth, keep an eye on the overall market sentiment toward liquid staking tokens, as regulatory scrutiny could impact adoption. Fourteenth, the ecosystem around frxETH is still growing, so new integrations could boost utility and demand. Finally, always diversify – relying solely on any single staking token can expose you to concentration risk. In sum, frxETH offers liquidity while sfrxETH provides the yield, and understanding the fee structure, compounding mechanics, and broader ecosystem is key to making an informed decision.

Jasmine Kate
Jasmine Kate 7 Oct

Whoa, Don! That's a lot to take in, but you nailed the details. 🎭

Mark Fewster
Mark Fewster 7 Oct

Interesting points, especially about the insurance fund.

Jason Duke
Jason Duke 7 Oct

Look, if the treasury decides to hike the fee tomorrow, everyone’s net APY drops instantly – stay vigilant!

Franceska Willis
Franceska Willis 7 Oct

i think its good but also kinda risky?

EDWARD SAKTI PUTRA
EDWARD SAKTI PUTRA 7 Oct

Risk is part of the game, just make sure you understand the fee mechanics before jumping in.

Patrick Gullion
Patrick Gullion 7 Oct

Honestly, I’m skeptical about any protocol that takes a slice of your yield – it feels like a hidden tax.

Jack Stiles
Jack Stiles 7 Oct

Looks solid, but I’d still keep some ETH off‑chain just in case.

Marcus Henderson
Marcus Henderson 7 Oct

While you consider the liquidity benefits, also reflect on the broader macroeconomic forces that could influence staking yields across all PoS networks; an unexpected downturn may compress yields, making the 10% fee proportionally more burdensome.

Andrew Lin
Andrew Lin 7 Oct

This whole thing is just another way for the elite to squeeze us.

21 Comments