Firelight's DeFi Coverage System Aims to Reward XRP Holders with Yield

XRP holders may soon have a new way to earn yield, thanks to Firelight's DeFi coverage system. By depositing FXRP, an XRP-linked asset on Flare, into a Firelight vault, holders can receive stXRP and potentially earn premiums as customers buy protection. The process works by using deposited FXRP as collateral to back coverage sold to DeFi protocols.

However, this new system comes with some tradeoffs. Once Firelight moves to 30-day coverage periods, withdrawal times could stretch from today's 1-2 days to roughly 30-60 days. This means that holders who exit near the end of a period could wait just over 30 days, while those who exit near the start of a period could wait closer to 60 days.

Firelight has already attracted about $72 million in deposits, but it's unclear how much paid coverage it has actually sold. The protocol also has a separate reserve called the First-Loss Buffer, which pays out validated claims first before any loss reaches staked FXRP.