Firelight, a new decentralized finance (DeFi) protocol, brings staking to XRP users, while also providing protocols with a form of on-chain protection against hacks.
Built by Sentora and backed by Flare Network, Firelight allows XRP holders to stake their tokens to earn rewards tied to the demand for DeFi “hedging,” a protection that can help protocols absorb losses from exploits, the protocol said in a press release on Wednesday.
The concept is similar to insurance in traditional finance, an area where the $160 billion DeFi sector still lags behind with billions of dollars lost to exploits and hacks preventing wider adoption.
“At this stage of DeFi’s maturity, it needs the same risk infrastructure that supports 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 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 liquid ERC-20 token that represents their stake. StXRP can be traded, used as collateral, or added to DeFi liquidity pools within the Flare ecosystem. In the second phase, this staked XRP will support the Firelight hedge pool, meaning the deposited funds are used to guarantee risk for opting DeFi protocols.
If a protocol suffers a loss and meets Firelight’s criteria, the pool can pay out from the capital staked by users. This reflects how insurers use collected premiums and reserves to pay claims. Premiums paid by covered protocols help fund staking rewards.
Firelight leverages Flare’s FAssets system to integrate XRP into DeFi. FAssets are fully decentralized synthetic versions of layer 1 tokens, allowing users to create FXRP – a wrapped form of XRP – without the need to trust centralized bridges. StXRP is created using FXRP, providing a direct on-ramp from XRP to Firelight’s staking system.
The protocol completed audits of OpenZeppelin and Coinspect and launched a bug bounty with Immunefi.
Although XRP is one of the most widely held cryptocurrencies, with a market capitalization of $130 billion, it still lacks native staking options, the protocol says. The total value locked on XRPL is just $72 million, according to DefiLlama.
Firelight aims to offer holders a new way to earn yield while 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
