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Firelight, a DeFi insurance protocol, just closed an $8 million funding round. Here, DeFi insurance moves past the traders and into the hands of mainstream financial companies that are looking to offer their customers onchain yield products. Firelight is a Miami-based project that will function as a risk mitigation layer for fintechs, for neobanks, for payment providers. The real addressable market here, CEO Anthony DeMartino told CoinDesk in an email, is not the crypto traders and investors but rather traditional financial institutions that are looking to upgrade their product offerings with some digital asset infrastructure.
However, DeFi has yet to achieve sufficient standardization of security practices to realize its full potential. In the meantime, millions of customer assets have been lost in smart contract failures across various DeFi protocols, totaling over $9B in losses per DeFiLlama. In the meantime, traditional insurance solutions offer little relief to fintech companies. Claims processing in legacy insurance solutions can take months to resolve, which creates an unacceptable delay between the time that customer funds get lost and the time that the customer gets compensated by the insurance. As a result, the risk of a smart contract failure of a protocol that a fintech is considering for a yield product of their customers can become a showstopper for the deal with the compliance and risk teams, wrote CoinDesk.
Firelight’s core functionality of dedicated cover capital, coupled with an expedited claims process, enables the protocol to settle losses within approximately 10 days. For claim adjudication, Firelight is targeting a three to four day window and notes that from the time a claim is submitted, it will take less than two weeks to go from initial claim submission to the liquidation of collateral and the payment of a loss to a policyholder.
“Also we are not looking at just the XRP, we are looking at a broader universe of assets right now that are liquid enough that they don’t have to earn a huge amount of yield but would be great in a cover capital pool for the types of insurance products we’re building out for onchain financial products that fintechs would want to integrate into their services,” DeMartino said.
DeMartino predicts large amounts of money in traditional bank accounts will move to fintech earn products, comprising of stablecoins, onchain vaults and digital wallets. This will correspond with a growing trend in the space of payments and remittances, where additional yield on top of the service provided is being layered in by companies. His affiliate Sentora has already begun to work with payroll and remittance providers to integrate yield bearing products within their applications – the exact type of use case that Firelight’s insurance model is designed to service, added Coindesk.
The funding confirms the investors’ belief that onchain finance will increasingly be brought to institutional clients by financial institutions that in turn will require a robust risk management layer. This is exactly what Firelight’s insurance will provide: the promise of high returns in DeFi combined with the security that financial services institutions can offer to their customers. While financial services institutions are accelerating their forays into blockchain, a reliable protocol risk insurance will become an essential service for them.
