> ## Content Index > Fetch the complete content index at: https://blog.lido.fi/llms.txt > Use this file to discover other available public pages before exploring further. # Lido Earn: Introducing Two Layers of Loss Protection - URL: https://blog.lido.fi/lido-earn-introducing-two-layers-of-loss-protection/ - Published: 2026-11-05T12:00:00.000Z - Updated: 2026-11-05T15:05:36.000Z - Description: EarnETH and EarnUSD now have two layers of loss protection: Firelight first, followed by the Lido DAO’s loss protection - Author: Lido - Tags: Ethereum From 5 November, EarnETH and EarnUSD depositors have two layers of loss protection. In partnership with [Firelight](https://firelight.finance/?ref=blog.lido.fi), Lido Earn is adding a new layer that will take effect before the Lido DAO’s [loss protection](https://blog.lido.fi/lido-earn-first-loss-protection-dao-alignment/), which has been active since March 2026. Firelight’s layer absorbs eligible and approved losses first, within limits set for each 30-day period. Remaining loss can then be absorbed through the DAO’s position in the affected vault, subject to the relevant terms and conditions. ## **What is Lido Earn** Lido Earn features onchain vaults in which users can deploy ETH or stablecoins to benefit from curated DeFi strategies for daily, auto-compounded earnings with transparent allocations. It has two vaults: - [EarnETH](https://stake.lido.fi/earn/eth?ref=blog.lido.fi) is an ETH growth vault allocating ETH and stETH across leading blue-chip DeFi protocols, designed for capital efficiency. - [EarnUSD](https://stake.lido.fi/earn/usd?ref=blog.lido.fi) provides access to USD-denominated reward strategies built around transparent asset selection, risk controls and reporting. Depositors receive earnETH or earnUSD tokens representing their share of the vault. The value of these tokens reflects the amount deposited and the vault’s performance. ## **How Lido Earn Vaults are Protected** EarnETH and EarnUSD each have two layers of loss protection. The first layer comes from Firelight, an onchain protection protocol incubated by [Sentora](https://sentora.com/?ref=blog.lido.fi) and built [on the Flare Network](https://flare.network/?ref=blog.lido.fi). If an eligible loss occurs, Firelight’s layer absorbs it first, within the limits set for each protected market for that 30-day period. For the first period, starting 5 November, this layer can absorb up to 5.7% of EarnETH’s TVL and up to 8% of EarnUSD’s. Any remaining loss can then be absorbed through [the Lido DAO’s loss protection](https://blog.lido.fi/lido-earn-first-loss-protection-dao-alignment/). Following a vote in March 2026, the DAO deposited $3M in wstETH into EarnETH and $2M in USDC into EarnUSD on the same terms as any other depositor. If a loss of 1% or more of a vault’s TVL is confirmed, up to 100% of the DAO’s shares in that vault can be burned. This allows the DAO’s position to absorb losses before they reach other depositors. If an adverse event occurs, Lido Earn depositors do not need to request compensation. Both layers work at the vault level and apply to all depositors in the affected vault. Current protection limits are shown on the [EarnETH](https://stake.lido.fi/earn/eth?ref=blog.lido.fi) and [EarnUSD](https://stake.lido.fi/earn/usd?ref=blog.lido.fi) vault pages. The two layers draw on separate sources of capital: Firelight’s protocol-owned reserve and staked capital, and the DAO’s own position in each vault. Each layer has defined limits and conditions. Deposits still carry risk, but within those limits and conditions, losses can be absorbed by Firelight and Lido DAO before they reach depositors. ![](https://blog.lido.fi/content/images/2026/11/Lido-Earn-Two-Layers.png) ## **The First layer: Firelight Protection** Firelight’s protection is backed by a protocol-owned reserve and by capital that stakers commit to the protocol in [FXRP](https://defillama.com/protocol/firelight?ref=blog.lido.fi). It applies to the EarnETH and EarnUSD vault contracts and approved DeFi markets their strategies use. It responds to six defined failure modes: smart contract exploits, oracle failures and governance exploits, plus bad debt, depegs and redemption failures caused by a protocol’s own mechanism failing. Normal market risk, such as price moves and liquidations on accurate prices, is excluded, along with stolen keys, user error, offchain issues and flaws known before a protection period began. [Firelight’s documentation](https://docs.firelight.finance/resources/cover-scope?ref=blog.lido.fi) sets out the definitions and conditions for each. Protection runs in fixed 30-day periods and is currently paid for with funds [from Current Meta (CM) Treasury](https://research.lido.fi/t/lido-earn-competing-on-trust-5m-treasury-allocation/11228/20?ref=blog.lido.fi), so it does not come out of vault returns. Before each new period, Lido Earn contributors confirm the protected markets and limits with Firelight, and these stay fixed for the whole period. A position moved into a new market mid-period is protected only once a later period includes it. Firelight monitors protected markets in real time. If an incident occurs, an independent [Risk Consortium](https://firelight.finance/?ref=blog.lido.fi#risk-consortium) of five security and risk firms approves or rejects Firelight’s loss assessment. Once approved, the payout is processed automatically, funded first from the reserve and then from staked capital. ## **The Decond layer: Lido DAO’s First-Loss Protection** Separate from Firelight’s terms, Lido DAO’s First-Loss Protection operates under its own mandate and is not limited to specific causes. Once a loss of 1% or more of a vault’s TVL is confirmed, the Growth Committee, on behalf of the Lido DAO, can burn up to 100% of the DAO-held shares in the affected vault to absorb the loss before it reaches other depositors. This layer is funded by the DAO’s own deposits, which earn the same returns as any other deposit. The mandate can be changed by a DAO vote. This protection has been used once. After the Kelp DAO rsETH incident in April 2026, the DeFi United relief effort addressed rsETH’s main backing shortfall. EarnETH’s remaining loss was below the mandate’s 1% threshold, so the DAO [approved](https://snapshot.box/?ref=blog.lido.fi#/s:lido-snapshot.eth/proposal/0x5629f9b201f32dbd5780f7e2e5601eed7504cdb7919b622a7ef039261d3c671a) a one-off exception and burned EarnETH shares worth 144.77 ETH from its own position ([Q2 report](https://research.lido.fi/t/lido-earn-dao-treasury-allocation-q2-2026/11831?ref=blog.lido.fi)). EarnETH depositors were ultimately made whole ([post-mortem](https://research.lido.fi/t/kelp-incident-review-earneth-exposure-response-and-risk-framework-changes/11579?ref=blog.lido.fi)). The DAO’s current deposit positions are reported quarterly. The latest figures appear [in the Q3 2026 report](https://research.lido.fi/t/lido-earn-dao-treasury-allocation-q3-2026/11996?ref=blog.lido.fi). [Learn more](https://blog.lido.fi/lido-earn-first-loss-protection-dao-alignment/) about the Lido DAO’s loss protection. ## **The Two Layers Together** As an illustration, here is what the two layers add up to at vault sizes as of 5 November 2026\*: **EarnETH, $212.9M in TVL** - Up to $12.1M in loss protection from Firelight - Up to $3.2M (1,388 ETH) in Lido DAO-funded protection **EarnUSD, $50.3M in TVL** - Up to $4M in loss protection from Firelight - Up to $2.1M in Lido DAO-funded protection Together, the two layers could absorb up to $15.4M in eligible losses in EarnETH and up to $6.1M in EarnUSD. These figures assume Firelight’s staked capital funds a payout in full. Under Firelight’s terms, a payout depends on the capital available at settlement and can be smaller than the validated loss. *\* TVL from* [*stake.lido.fi/earn*](https://stake.lido.fi/earn?ref=blog.lido.fi) *as of 5 November 2026; Firelight limits for the first 30-day period: 5.7% of EarnETH TVL and 8% of EarnUSD TVL; Lido DAO’s positions as of 30 September 2026,* [*from the Q3 2026 report*](https://research.lido.fi/t/lido-earn-dao-treasury-allocation-q3-2026/11996?ref=blog.lido.fi)*.* ## **Security & Known Risks** The Lido Earn vault contracts [are audited by Sherlock and Nethermind](https://docs.lido.fi/earn/audits/?ref=blog.lido.fi), with module and utility audits by Nethermind and MixBytes through July 2026\. A live bug bounty on Sherlock offers up to 100,000 USDC for valid findings. Firelight’s smart contracts [are audited](https://docs.firelight.finance/resources/audits-and-security?ref=blog.lido.fi) by OpenZeppelin and 0xMacro; its frontend by Coinspect, with two audit competitions on Immunefi and an active bug bounty. *Audits, bug bounties, and operational controls are intended to reduce but do not eliminate underlying protocol or market risks. Additional risks may remain or be unidentified.* Neither layer is insurance or a guarantee against losses. Firelight’s protection does not give depositors any right or cause of action against any Firelight party, and neither layer makes Lido Earn risk-free. Explore EarnETH and EarnUSD at [stake.lido.fi/earn](https://stake.lido.fi/earn?ref=blog.lido.fi). ## **Further Reading** - [Firelight: Protection Scope](https://docs.firelight.finance/resources/cover-scope?ref=blog.lido.fi) - [Lido Earn: First-Loss Protection & DAO Alignment](https://blog.lido.fi/lido-earn-first-loss-protection-dao-alignment/) - [Lido Earn DAO Treasury Allocation: Q3 2026 report](https://research.lido.fi/t/lido-earn-dao-treasury-allocation-q3-2026/11996?ref=blog.lido.fi) - [Kelp Incident Review: EarnETH Exposure, Response, and Risk Framework Changes](https://research.lido.fi/t/kelp-incident-review-earneth-exposure-response-and-risk-framework-changes/11579?ref=blog.lido.fi) - [Lido Earn Documentation](https://docs.lido.fi/earn/?ref=blog.lido.fi)