docs: Add XRPLF-formatted XLS specification for PR submission

- Create docs/xls-spec/README.md matching XRPLF conventions
- Frontmatter with discussion-from, category, requires fields
- Updated status reflecting production deployment
- Ready for fork/PR to XRPLF/XRPL-Standards

Author: Will Flores

docs/XLS-103d-specification.md

@@ -0,0 +1,210 @@
+<pre>
+  xls: XXXX
+  title: Institutional DeFi Insurance Protocol
+  description: Ecosystem-level insurance layer for XLS-66 Lending Protocol vault depositors, protecting against borrower defaults exceeding First-Loss Capital coverage.
+  author: Will Flores <wflores@wardprotocol.org>
+  discussion-from: https://github.com/XRPLF/XRPL-Standards/discussions/474
+  category: Ecosystem
+  requires: XLS-65, XLS-66
+  status: Draft
+  created: 2026-02-15
+  updated: 2026-02-21
+</pre>
+
+# Institutional DeFi Insurance Protocol
+
+## 1. Abstract
+
+Ward Protocol provides institutional-grade insurance coverage for vault depositors participating in the XLS-66 Lending Protocol on the XRP Ledger. The protocol enables vault depositors to purchase insurance policies that protect against losses exceeding First-Loss Capital protection when borrowers default.
+
+Ward Protocol operates as an ecosystem-level application using existing XRPL primitives (XLS-30 AMM pools, XLS-20 NFTs, Payment transactions, and Escrow) without requiring protocol amendments. Insurance pools aggregate institutional capital, collect premiums from protected depositors, and automatically process claims triggered by XLS-66 default events that result in vault asset losses.
+
+## 2. Motivation
+
+The XLS-66 Lending Protocol enables fixed-term, fixed-rate loans on the XRP Ledger using pooled liquidity from XLS-65 Single Asset Vaults. While XLS-66 includes First-Loss Capital protection managed by LoanBrokers, vault depositors face significant uninsured risks when defaults exceed this protection.
+
+### 2.1 The Uninsured Loss Gap
+
+When a borrower defaults on an XLS-66 loan, the loss calculation follows:
+```
+DefaultAmount = Loan.PrincipalOutstanding + Loan.InterestOutstanding
+DefaultCovered = min(FirstLossCapital × LiquidationRate, DefaultAmount)
+VaultLoss = DefaultAmount - DefaultCovered
+```
+
+Example: A $55,000 default with $1,000 first-loss coverage leaves vault depositors with $54,000 in uninsured losses, distributed proportionally across all vault share holders via reduced `Vault.AssetsTotal`.
+
+### 2.2 Institutional Barriers
+
+This uninsured gap creates barriers for institutional participation:
+
+1. Regulatory capital requirements prevent allocation to uninsured positions
+2. Risk exposure exceeds acceptable limits for fiduciary mandates
+3. No mechanism exists to transfer tail risk to willing counterparties
+4. Vault share devaluation from `Vault.LossUnrealized` creates mark-to-market risk
+
+## 3. Specification
+
+### 3.1 Design Rationale: Ecosystem Layer
+
+Ward Protocol operates entirely at the ecosystem layer rather than proposing protocol amendments:
+
+- **Rapid deployment**: Production-ready in weeks, not the months/years required for amendments
+- **Market validation**: Prove institutional demand before requesting protocol changes
+- **Iteration speed**: Bug fixes and feature additions without consensus requirements
+- **Future upgrade path**: Successful adoption informs a potential native amendment (XLS-104)
+
+### 3.2 XRPL Primitives Used
+
+| Primitive | Usage |
+|-----------|-------|
+| XLS-20 NFTs | Policy certificates (transferable, with metadata) |
+| XLS-30 AMM | Insurance pool capital aggregation |
+| XLS-65 Vaults | Monitor depositor positions and share values |
+| XLS-66 Loans | Detect defaults, calculate losses |
+| XLS-80 Permissioned Domains | Institutional compliance and access control |
+| XLS-70 Credentials | Credential verification for domain membership |
+| Escrow | Time-locked claim settlements (48-hour dispute window) |
+
+### 3.3 Core Components
+
+#### 3.3.1 Insurance Pool Management
+
+Insurance pools aggregate capital using XLS-30 AMM pools:
+
+- **Pool Asset**: XRP or RLUSD (matches the XLS-66 vault asset)
+- **Liquidity Providers**: Institutional capital allocators seeking premium yield
+- **Pool Shares**: AMM LP tokens representing proportional ownership
+- **Capital Requirements**: Minimum 200% coverage ratio enforced programmatically
+
+#### 3.3.2 Policy Issuance
+
+Policies are minted as XLS-20 NFTs with structured metadata:
+```json
+{
+  "protocol": "ward-v1",
+  "vault_id": "2DE64CA4...",
+  "coverage_amount": "50000000000",
+  "coverage_start": "2026-02-15T00:00:00Z",
+  "coverage_end": "2026-05-15T00:00:00Z",
+  "pool_id": "3F4A5B6C..."
+}
+```
+
+Policy NFTs are fully transferable, enabling secondary market trading and portfolio management.
+
+#### 3.3.3 Premium Calculation
+```
+premium = coverage × base_rate × term_factor × risk_multiplier
+
+Where:
+  base_rate: 1-5% annually (risk-tiered)
+  risk_multiplier: 0.5x - 2.0x based on:
+    - Vault utilization rate
+    - First-loss coverage ratio
+    - Impairment ratio (LossUnrealized / AssetsTotal)
+    - Historical default rate
+```
+
+#### 3.3.4 Default Monitoring
+
+Real-time monitoring of XLS-66 loan state:
+
+- WebSocket subscription to `LoanManage` transactions
+- Parse `tfLoanDefault` flag (0x00010000)
+- Track `Vault.AssetsTotal` changes post-default
+- Calculate per-share loss impact
+
+#### 3.3.5 Claim Validation (9 Steps)
+
+1. Verify loan defaulted (`lsfLoanDefault` flag on ledger)
+2. Calculate vault loss using XLS-66 formulas
+3. Fetch policy from Ward database
+4. Verify policy status is active
+5. Check claim is within coverage window
+6. Verify vault matches policy vault_id
+7. Calculate payout: `min(depositor_loss, coverage_amount)`
+8. Verify pool capital adequacy for payout
+9. Approve/reject with full audit log
+
+#### 3.3.6 Escrow Settlement
+
+Approved claims create XRPL Escrow transactions:
+
+- 48-hour hold period for dispute resolution
+- Multi-sig (3-of-5) can cancel fraudulent claims during hold
+- Automatic release after hold period expires
+- Full on-chain audit trail
+
+### 3.4 Permissioned Domain Integration (XLS-80)
+
+Ward Protocol uses XLS-80 Permissioned Domains for institutional access control:
+
+- **Domain Registration**: Ward operates a permissioned domain requiring XLS-70 credentials
+- **Credential Types**: KYC verification, accredited investor status, institutional mandate
+- **Access Tiers**: Public (view), Authenticated (purchase policies), Admin (pool management)
+
+### 3.5 API Specification
+
+Production API available at `https://api.wardprotocol.org` with OpenAPI documentation at `/docs`.
+
+**Endpoint Categories:**
+- **Public**: Health checks, pool statistics, protocol information
+- **Permissioned Domains**: Domain creation, credential verification, membership management
+- **Admin**: Pool configuration, claim processing, system monitoring
+
+All authenticated endpoints require API key via `X-API-Key` header with tiered rate limiting.
+
+## 4. Security Considerations
+
+1. **Oracle Risk**: Multiple independent monitoring nodes with 3-of-5 consensus required for claim approval
+2. **Capital Adequacy**: 200% minimum coverage ratio enforced; pools cannot issue policies beyond capacity
+3. **Key Management**: Multi-sig (3-of-5) institutional signers; cold storage for reserve capital
+4. **Claim Validation**: 48-hour escrow provides dispute window before settlement
+5. **No Custom Smart Contracts**: Uses only native XRPL transaction types, eliminating smart contract risk
+6. **Infrastructure Security**: Production VPS hardened with UFW firewall, Fail2ban intrusion prevention, SSH key-only auth, automated PostgreSQL backups
+
+## 5. Reference Implementation
+
+**Repository**: https://github.com/wflores9/ward-protocol
+
+**Stack**:
+- Python 3.12 with xrpl-py SDK
+- FastAPI + Uvicorn (API server)
+- PostgreSQL 16 (policy and claims database)
+- Nginx with SSL/TLS (reverse proxy)
+
+**Current Status**:
+- Production API live at api.wardprotocol.org
+- XLS-80 Permissioned Domain registered on testnet
+- 60 automated tests, 75% code coverage
+- OpenAPI documentation at /docs and /redoc
+- Hardened production infrastructure with automated backups
+
+## 6. Future Upgrade Path: XLS-104
+
+If Ward Protocol achieves product-market fit, a future amendment proposal could introduce:
+
+- Native `InsurancePolicy` ledger object type
+- `PolicyClaim` transaction type
+- Automated claim settlement hooks integrated with XLS-66
+- Reduced operational costs through native ledger support
+
+This ecosystem-first approach validates demand and refines the specification before proposing protocol-level changes.
+
+## 7. Discussion
+
+Community feedback is requested on:
+
+1. Are there other XRPL lending protocols Ward should design compatibility for?
+2. Would native insurance primitives be valuable for use cases beyond lending?
+3. Should we coordinate with XLS-66 implementers for joint testnet demonstration?
+4. Is the 48-hour escrow period appropriate, or should it be configurable?
+
+---
+
+**Contact:**
+- GitHub: [@wflores9](https://github.com/wflores9)
+- Repository: https://github.com/wflores9/ward-protocol
+- API: https://api.wardprotocol.org
+- Email: wflores@wardprotocol.org