SOFR replaced US dollar libor as the reference for swaps, floating rate loans and floating-rate-notes. Unlike LIBOR it is based on actual transactions, roughly a trillion dollars a day of repo, rather than submitted estimates.
Because it is secured and backward-looking, SOFR contains almost no bank credit risk, so it spikes on funding stress rather than credit stress. Quarter-end and year-end prints often jump as dealers shrink balance sheets.
Example: SOFR fixes at 5.31% while effr is 5.33%. A loan priced at SOFR + 150 bp therefore charges 6.81% for that day, and compounds daily over the interest period.
Related: repo, effr, libor, ois, floating-rate-note