Frax Ether is a liquid ETH staking derivative that utilizes the Frax Finance ecosystem to maximize staking yield and simplify the Ethereum staking process. It offers a secure and DeFi-native way to earn interest on ETH. The Frax Ether system consists of three main components: frxETH, sfrxETH, and the Frax ETH Minter.

frxETH acts as a stablecoin loosely pegged to ETH and brings ETH into the Frax ecosystem. sfrxETH is the version of frxETH that accumulates staking yield, with profits from Frax Ether validators distributed to sfrxETH holders. By exchanging frxETH for sfrxETH, users become eligible for staking yield, which can be redeemed by converting sfrxETH back to frxETH.

The Frax ETH Minter allows the exchange of ETH for frxETH, bringing ETH into the Frax ecosystem, creating new validator nodes, and minting new frxETH equivalent to the amount of ETH sent. ETH in the Frax ecosystem exists as frxETH (Frax Ether) and sfrxETH (Staked Frax Ether).

frxETH is a stablecoin pegged to ETH, where 1 frxETH represents 1 ETH. Holding frxETH alone does not earn staking yield and is similar to holding ETH.

sfrxETH is an ERC-4626 vault that accrues staking yield from the Frax ETH validators. Users can exchange frxETH for sfrxETH by depositing it into the sfrxETH vault, allowing them to earn staking yield on their frxETH. Over time, as validators generate staking yield, an equivalent amount of frxETH is minted and added to the vault. This increases the exchange rate of frxETH per sfrxETH, enabling users to redeem their sfrxETH for a greater amount of frxETH than they initially deposited. Holding sfrxETH entitles users to a percentage claim on the increasing amount of frxETH in the vault, with staking rewards distributed proportionally among sfrxETH holders. This concept is similar to autocompounding tokens like Aave's aUSDC and Compound's cUSDC.