What Phase 2 Activates

Three mechanics change at the moment Phase 2 launches.

Automated capital migration: Every FXRP position currently deployed to the protocol is automatically converted to a staked position in the Firelight Protocol when Phase 2 goes live. Stakers do not have to take any manual action and the onboarding sequence stays the same: wrap XRP into FXRP through the FAssets system, hold a nominal FLR balance for gas, and deploy FXRP to the Firelight protocol to mint stXRP.

Streamed emissions and slashing go live: Reward emissions begin streaming to positions. Slashing exposure activates in parallel, since the same capital that earns emissions is the capital that backs coverage. A position cannot receive one without carrying the other.

The unstaking window extends: As staked FXRP backs coverage, the window is set so that capital cannot exit ahead of the coverage obligations. The unstaking window for the coverage vault is longer than the window in Phase 1. As cover is enabled, the unstaking window will increase to match the 30-day coverage periods.

The First Loss Buffer and Slashing

Contributed FXRP is the primary capital backing cover actively enabled on existing program vaults. When a covered protocol experiences a smart contract exploit, oracle failure, or systemic economic vulnerability, the independent Risk Consortium evaluates the incident against published criteria. A validated claim draws down the capital that backs the affected coverage.

To limit the impact of smaller, non-systemic incidents, the protocol maintains a dedicated, protocol-owned stablecoin reserve: the First-Loss Buffer. The buffer absorbs the first tranche of any validated claim. It sits between claims and staked positions, so the primary FXRP capital is only drawn on during severe losses.

Once the First-Loss Buffer is exhausted, stakers face slashing: a pro-rata reduction of staked positions used to enable payouts on a validated claim.

Emissions Mechanics and Staking Risk

Firelight stakers receive protocol emissions generated as vault operators enable cover on their vaults. These emissions auto-compound, meaning rewards convert from stablecoins into FXRP and flow directly back into the staker's position. There is no separate claim step for base emissions.

As a position compounds, redemption value rises, as does the exposure to slashing. For stakers that never withdraw and let positions compound for an extended period of time, there is higher slashing exposure for a larger position. 

Please note that a staker's return reflects the protocol's total emissions relative to their contributed capital, not the performance of a specific coverage relationship.

Moving Forward

Phase 2 marks the transition from liquidity accumulation to active cover. With capital automatically migrating into active positions, streamed emissions and slashing activating simultaneously, and the unstaking window extending to reflect enabled coverage, the protocol enters its operational phase.

As the Firelight protocol prepares for this release, we’d like to encourage everyone to read the documentation here, help fellow Firelight users with questions and jump in our Discord if you have any questions yourself.