Coverage Types
Firelight Coverage addresses two broad categories of DeFi risk: technical failures in underlying code and infrastructure, and economic failures in protocol mechanisms. Both require a clear trigger and verifiable on-chain evidence.
Within the economic category, coverage spans both direct bad-debt incidents on a covered market and structural impairments transmitted through relationships between collateral assets and the loan tokens they back. The risk framework treats these as a single economic view but tracks them through separate signals. See Economic Model.
This page describes the categories at a high level. The full, legally binding cover terms, including precise definitions, conditions, and the complete exclusions list, are published separately and linked from Resources.
Covered technical risks
Technical risks stem from failures in smart contract code, oracle infrastructure, and governance mechanisms.
Smart contract exploits
Losses from bugs, logic errors, or vulnerabilities such as reentrancy, access-control failures, and upgradeable-proxy implementation errors
Oracle failures
Losses from oracle malfunction or manipulation, including price-feed manipulation, stale-data exploitation, and data-source compromise
Governance exploits
Losses from governance mechanism failures, including malicious upgrade execution and flash-loan-enabled voting
Covered economic risks
Economic risks stem from protocol mechanisms failing under stress, rather than from normal market conditions.
Bad-debt from mechanism failure
Protocol bad-debt arising from mechanism malfunction, including liquidation mechanisms that fail to function as designed
Depegs caused by mechanism failure
Pegged-asset deviations caused by a redemption or stabilization mechanism breaking
Redemption failures
Losses when a protocol cannot honor withdrawals due to design flaws
Economic-risk coverage carries a duty to mitigate. Once a program operator becomes aware of, or circumstances indicate the likelihood of, a covered economic incident, they must take reasonable steps to limit losses, such as attempting to withdraw, deleverage, or redeem. Payouts may be reduced to the extent losses could reasonably have been avoided. Full cover terms document linked from Resources. That document will be published to IPFS closer to launch.
Economic-risk coverage is subject to sublimits set in the Coverage Schedule. Technical-risk coverage is written to the full scheduled limit.
What is not covered
Coverage is for failures of mechanism and code, not for ordinary market outcomes. At a high level, the following are excluded: normal market volatility, MEV, fundamental or structural design flaws, including undisclosed architectural weaknesses, rug pulls and insider theft, user error, including key loss and mis-signing, frontend and phishing attacks, regulatory seizure, risks disclosed and accepted at inception, depegs where redemption works as designed, legitimate governance outcomes, force majeure, exploits occurring before coverage inception or after expiry, and losses on markets not listed in the Cover Terms.
The exclusions above are a summary. The authoritative, complete exclusions list and all boundary definitions live in the full cover terms document linked from Resources. That document will be published to IPFS closer to launch.
Where to read next
Risk Pricing Framework shows how these risks are monitored and priced.
Claims Process walks through how a covered incident becomes a payout.
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