Firelight, a new decentralized finance (DeFi) protocol, offers staking to XRP users, while also offering protocols a form of on-chain protection against attacks.
Created by Sentora and backed by Flare Network, Firelight allows XRP holders to stake their tokens to earn rewards tied to DeFi’s “hedge” demand, protection that can help protocols absorb losses from exploits, the protocol said in a Wednesday press release.
The concept is similar to insurance in traditional finance, an area where the $160 billion DeFi sector is still lagging and billions of dollars are lost to exploits and hacks that hinder broader adoption.
“At this stage of DeFi maturity, it needs the same risk infrastructure that underpins all other financial markets,” Connor Sullivan, chief strategy officer at Firelight, said in a statement. “Firelight introduces a capital-efficient layer of protection that can absorb shocks, reduce technical and economic risk, and make the entire ecosystem more resilient.”
The system works in two phases, the company explained. First, users deposit XRP and receive stXRP, a liquid ERC-20 token representing their stake. StXRP can be traded, used as collateral, or added to DeFi liquidity pools within the Flare ecosystem. In the second phase, staked XRP will back Firelight’s hedge pool, meaning the deposited funds are used to underwrite the risk of DeFi protocols that choose to participate.
If a protocol experiences a loss and meets Firelight’s criteria, the pool can pay with capital staked by users. This reflects the way insurers use collected premiums and reserves to pay claims. Premiums paid for covered protocols help fund staking rewards.
Firelight builds on Flare’s FAssets system to bring XRP to DeFi. FAssets are fully decentralized synthetic versions of Layer 1 tokens, allowing users to mint FXRP (a wrapped form of XRP) without needing to rely on centralized bridges. StXRP is minted using FXRP, providing a direct on-ramp from XRP to the Firelight staking system.
The protocol completed OpenZeppelin and Coinspect audits and launched a bug bounty with Immunefi.
While XRP is one of the most widely held cryptocurrencies, with a market capitalization of $130 billion, it still lacks native staking options, according to the protocol. The total value locked in XRPL amounts to only $72 million, according to DefiLlama.
Firelight aims to provide holders with a new way to earn yield while also supporting a layer of security that could help DeFi move closer to institutional standards.
Read more: Risk, reward and resilience: creating insurance primitives in DeFi
