Firelight, a new decentralized finance (DeFi) protocol, brings staking to XRP users while offering protocols a form of onchain protection against hacks.
Built by Sentora and backed by the Flare Network, Firelight allows XRP holders to stake their tokens to earn rewards tied to demand for DeFi “hedging,” protections that can help protocols absorb losses from exploits, the protocol said in a press release Wednesday.
The concept is similar to insurance in traditional finance, an area where the $160 billion DeFi sector still lags, with billions of dollars lost in exploits and hacks hindering wider adoption.
“At this stage in DeFi’s 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 protective layer that can absorb shocks, reduce technical and financial risks and make the entire ecosystem more resilient.”
The system works in two phases, the company explained. First, users deposit XRP and receive stXRP, a floating ERC-20 token representing their stake. StXRP can be traded, used as collateral, or added to DeFi liquidity pools in the Flare ecosystem. In the second phase, the staked XRP will back the Firelight hedging pool, meaning the deposited funds are used to underwrite risk for DeFi protocols that sign up.
If a protocol experiences a loss and meets Firelight’s criteria, the pool can pay out from the capital users have staked. This reflects the way insurance companies use collected premiums and reserves to pay claims. Premiums paid by covered protocols help fund stake rewards.
Firelight relies on Flare’s FAssets system to bring XRP into DeFi. FAssets are fully decentralized synthetic versions of layer-1 tokens that allow users to mint FXRP – a wrapped form of XRP – without having to rely on centralized bridges. StXRP is minted using FXRP, providing a direct on-ramp from XRP to Firelight’s staking system.
The protocol has completed audits of OpenZeppelin and Coinspect and launched a bug bounty with Immunefi.
While XRP is one of the most widely used cryptocurrencies with a market cap of $130 billion, it has yet to lack native staking options, the protocol said. Total value locked on XRPL stands at just $72 million, according to DefiLlama.
Firelight aims to provide holders with a new way to earn dividends while supporting a security layer that can help DeFi move closer to institutional standards.
Read more: Risk, Reward and Resilience: Building Insurance Primitives in DeFi
