Firelight Protocol raised $8 million to build an onchain protection layer for decentralized finance with plans to expand the assets backing its cover system beyond $XRP ($XRP) to bitcoin BTC$78,358.31 and Stellar's XLM, the firm told CoinDesk Tuesday.
The investment round was led by Gumi Cryptos Capital, with Maven 11, Metalayer, Joint Effects and Tribe Capital also participating, the firm said. Firelight, which was incubated by Sentora, a DeFi infrastructure provider with $2.4 billion in assets held in its vaults, plans to launch the protocol and its first cover integrations in September.
The project is tackling a problem that has become more pressing as fintechs and other mainstream financial firms experiment with onchain yield: DeFi can offer attractive returns, but a single smart-contract exploit can wipe out customer funds, while traditional insurance can take months to pay. Firelight is trying to bridge that gap with dedicated cover capital and a claims process designed to settle eligible losses in about 10 days.
The risk has been highlighted by a string of attacks on DeFi projects. Over $9 billion in assets have been stolen in DeFi protocol exploits over the years, DefiLlama data shows.
Firelight is also considering a broader universe of liquid assets that do not already generate substantial yield, CEO Anthony DeMartino told CoinDesk in an interview.
“There’s a bunch of different assets that we’re considering,” DeMartino said. “Anything ... that’s a solid asset, that has good liquidity to it, that doesn’t provide its own natural yield, will eventually be eligible to be posted as collateral.”
Fintech money onchain
Firelight is betting that the bigger opportunity lies beyond crypto-native traders as fintechs, neobanks and payments companies increasingly plug onchain yield products into their apps.
The possibility of losing customer capital to an exploit can become a major obstacle when a product is ready to go live, DeMartino said. Firelight aims to provide a protection layer that makes that jump less daunting.
“This isn’t built for degens,” he said. “This is built to bring the next wave of capital in. We want to be that protection layer to allow that adoption.”
DeMartino said he expects more money currently sitting in bank accounts to migrate into fintech earn products powered by stablecoins, onchain vaults and wallets. Sentora itself has been working on bringing yield products to fintech applications, including payroll and remittance platforms, he said.
The protection gap remains large. Roughly $80 billion is locked in DeFi, according to Firelight, while only a fraction of a percent is protected by onchain cover.