Staked Frax USD (sfrxUSD) is an ERC4626 token that functions as a yielding stablecoin. It is fully redeemable for frxUSD at a rate that grows in proportion to the yield mechanism. The token does not rebase, and users can always exchange it for the underlying frxUSD without facing unstaking fees or price impact.

The design of sfrxUSD is distinct because it aims for a benchmark-rate strategy. This approach rotates among three governance-approved options to secure what appears to be the most competitive onchain APY: carry-trade, algorithmic market operations (AMOs), and the Interest on Reserve Balances/T-Bill (IORB) rate.

The Benchmark Yield Strategy (BYS) manages this process by directing all frxUSD staked in the sfrxUSD yield vault to the highest-yielding venue available under current market conditions. Specifically:

• If carry-trade yields exceed DeFi yields, the staked frxUSD is allocated to carry-trade strategies.
• If DeFi AMO strategies offer higher returns than carry-trade, the funds are directed to DeFi venues via AMOs.
• If the IORB/T-Bill rate is the highest, the staked frxUSD is allocated to real-world asset (RWA) strategies that hold short-dated (>90 days) United States Treasury Bills.

As the volume of staked frxUSD rises, the strategy adapts to the best available yield source. This allows sfrxUSD holders to earn the highest risk-adjusted yield onchain in nearly all market conditions without needing to hold other yielding USD stablecoins.