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sfrxETH is an ERC-4626 vault built to collect staking income from the Frax ETH validators. Users can convert frxETH into sfrxETH at any time by depositing it into the sfrxETH vault, enabling them to earn staking yield on their frxETH. As validator staking rewards accumulate, the vault mints and adds an equivalent amount of frxETH, so redeeming sfrxETH later yields more frxETH than was originally deposited.
The conversion rate of frxETH relative to sfrxETH rises over time as staking rewards enter the vault. When you hold sfrxETH, you effectively own a % share of a growing balance of the vault’s frxETH, with staking rewards distributed across sfrxETH holders in proportion to their share of the total sfrxETH. This approach is comparable to other autocompounding tokens such as Aave’s aUSDC and Compound’s cUSDC.
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