Lido Earn adds Firelight loss protection to its vaults

Lido has integrated Firelight loss protection into its EarnETH and EarnUSD vaults, effective November 5, 2026. The new protection layer provides coverage up to 5.7% of EarnETH's total value locked and 8% of EarnUSD's total value locked. The protection is currently funded by the Meta Treasury, meaning it doesn't reduce returns for vault depositors.

Depositors do not need to enroll or request compensation after an incident, as both protection layers apply automatically at the vault level to all affected depositors. The vault pages display the current protection limits, and the coverage operates alongside an existing DAO-funded buffer that was already in place for both vaults.

Firelight coverage details

Firelight is an on-chain protection protocol built on Flare and incubated by Sentora. It operates with fixed 30-day periods, during which Lido Earn contributors confirm protected markets and limits with Firelight. The coverage includes smart-contract exploits, oracle failures, governance exploits, bad debt, depegs, and redemption failures caused by protocol malfunctions.

Normal price movements and liquidations using accurate prices are excluded from coverage, as are stolen keys, user error, off-chain problems, and flaws known before the protection period began. Economic losses are measured after a 24-hour stabilization period unless the Risk Consortium specifies otherwise.

Approval and payment process

Firelight monitors protected markets in real time and assesses losses after an incident. An independent Risk Consortium of five security and risk firms approves or rejects assessments. Once approved, payouts run automatically, drawing first on the protocol-owned reserve and then on staked capital in $FXRP.

The program operator must still take reasonable steps to limit losses and provide information when asked for bad debt, depeg, and redemption events. Firelight can reduce payouts proportionally to losses the operator could have reasonably avoided. Events affecting multiple covered markets through the same root cause within 24 consecutive hours count as one incident.

DAO buffer remains separate

The existing DAO protection mechanism began with $3 million in $wstETH for EarnETH and $2 million in $USDC for EarnUSD. The DAO pays the same fees and holds the same vault shares as other depositors. When a confirmed loss reaches at least 1% of a vault's TVL, the Growth Committee can burn up to 100% of DAO-held shares to absorb losses.

This separate layer can cover losses beyond Firelight's specified causes. After the Kelp DAO $rsETH incident in April, the DAO approved a one-off exception and burned shares worth 144.77 ETH to cover residual losses. Lido's current illustration shows EarnETH with $212.9M TVL, protected by up to $12.1M from Firelight and $3.2M from the DAO buffer.