> For the complete documentation index, see [llms.txt](https://docs.firelight.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.firelight.finance/core-concepts/coverage-types.md).

# 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](/risk-and-pricing-model/economic-model.md).

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](/resources.md).

### Covered technical risks

Technical risks stem from failures in smart contract code, oracle infrastructure, and governance mechanisms.

| Risk category           | Description                                                                                                                                 |
| ----------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- |
| 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.

| Risk category                      | Description                                                                                                              |
| ---------------------------------- | ------------------------------------------------------------------------------------------------------------------------ |
| 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                                                      |

{% hint style="warning" %}
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](/resources.md). That document will be published to IPFS closer to launch.
{% endhint %}

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.

{% hint style="info" %}
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](/resources.md). That document will be published to IPFS closer to launch.
{% endhint %}

### Where to read next

* [Risk Pricing Framework](/core-concepts/risk-pricing-framework.md) shows how these risks are monitored and priced.
* [Claims Process](/for-program-operators/claims-process.md) walks through how a covered incident becomes a payout.


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