frxETH's yield advantage is not magic and it is not free. The protocol splits its user base: frxETH is a plain ETH-pegged token that earns no staking reward, and sfrxETH is the staked version that receives the rewards from all of it. Users who hold frxETH in liquidity pools for trading fees effectively donate their staking yield to sfrxETH holders.
What that means for a holder
If you hold sfrxETH, your yield is genuinely higher than stETH's. If you hold frxETH without staking it, you are earning nothing from staking and should understand why. The design is disclosed and is a legitimate mechanism; it is also easy to misread as free extra yield.
Validator set and governance
Validators are operated by a small permissioned set, with governance concentrated among veFXS holders and the founding team. That is materially less decentralised than Rocket Pool or even Lido, and it is why the decentralisation criterion scores 5.5.
Withdrawals and liquidity
The v2 redesign implemented working withdrawals. Liquidity is reasonable within the Frax ecosystem and thinner outside it, with the token's usefulness closely tied to Frax's own lending and stablecoin products.
Who should use it
Users already active in the Frax ecosystem who understand the two-token split. Anyone wanting a straightforward staked-ETH position with broad integrations should use stETH or rETH.