Firelight Raises $8 Million to Tackle DeFi's Massive Protection Gap

By Lidia Yadlos

Around $80 billion is currently locked across DeFi, yet only a fraction of a percent of that capital is protected by onchain cover. Firelight wants to close that gap.

The decentralized cover protocol has raised $8 million in seed funding led by Gumi Cryptos Capital, with participation from Maven 11, Metalayer, Joint Effects and Tribe Capital. The funding will support the development of infrastructure designed to protect capital against smart contract failures, protocol exploits and other economic risks across DeFi.

Incubated by institutional DeFi provider Sentora and backed by Flare Network, Firelight is expected to launch its protocol and first cover integrations in September.

The timing comes as more fintech companies, neobanks and institutional investors explore onchain lending, yield and other DeFi products. While the infrastructure for deploying capital has matured considerably, protection against losing that capital has struggled to keep pace.

Using XRP to Protect DeFi Capital

Firelight is taking an unusual approach to solving the problem. Rather than relying primarily on assets closely tied to DeFi markets, the protocol plans to use assets with relatively low correlation to the DeFi ecosystem as the capital backing its cover products.

It is starting with XRP, with BTC and XLM expected to follow. Firelight says this creates a more independent pool of capital that can provide protection for DeFi protocols and vaults without being as directly exposed to the same market conditions affecting the assets being covered.

The structure effectively gives holders of assets such as XRP another potential role within onchain finance. Staked XRP will help support protocol operations and establish capital backing for cover implementations.

"Protocol cover and capital protection remain among the biggest blockers to institutional adoption of DeFi," said Anthony DeMartino, co-founder and CEO of Firelight.

"Institutions need confidence that they can deploy capital onchain with credible protection against smart contract and economic risk. Firelight is building the infrastructure to provide that protection at scale, across protocols, vaults and a growing range of onchain financial products."

Who Decides When Something Goes Wrong?

Providing capital is only one part of an onchain protection system. Determining whether an actual covered event has occurred can be just as important.

Firelight plans to handle those decisions through the DeFi Risk Consortium, an independent group of security and risk firms that includes GFX Labs, Hypernative, Credora, Native and Cyfrin.

The consortium will assess coverage events and use onchain attestations to validate claims, creating a transparent record of how decisions are reached.

That becomes increasingly important as DeFi products grow more complex. Losses can come from obvious smart contract exploits, but protocols can also face oracle failures, governance attacks and economic vulnerabilities that are harder to classify.

Firelight says it is already working with crypto institutions and DeFi protocols, with its first integrations expected alongside the protocol's September launch.

Institutional Experience Behind Firelight

Firelight's leadership combines experience across traditional finance, crypto and insurance. CEO Anthony DeMartino previously led Risk Strategies at Coinbase after two decades at HSBC, Barclays and UBS. CTO Jesus Rodriguez co-founded Sentora and several AI companies, while Chief Strategy Officer Connor Sullivan previously worked at Fireblocks and reinsurance firm TransRe.

With only a tiny percentage of roughly $80 billion in DeFi capital currently covered, Firelight sees a major opportunity to build the protection infrastructure needed as more institutional money moves onchain.

Published on Blockster

Firelight Raises $8 Million to Tackle DeFi's Massive Protection Gap