Lantern Rite will be the main event in version 1.3, and it's based on the Lantern Festival, a Chinese festival celebrated on the fifteenth day of the first month in the lunisolar Chinese calendar.
The event has 3 stages, starting with Lantern Rite Tales. Complete requests during the event to get increase the "Festive Fever", which will then unlock more things in Lantern Rite Story. The Xiao market is the event's exchange shop. You can get more of the event exchange currency, called "Peace Talismans", through another part of the event: "Theater Mechanicus".
The Origin of the Lanterns 2021/02/10 10:00:00 – 2021/02/28 03:59:59
Currents Deep Beneath the Lanterns 2021/02/14 04:00:00 – 2021/02/28 03:59:59
Light Upon the Sea 2021/02/18 04:00:00 – 2021/02/28 03:59:59
Xiao Lanterns are part of the event, and it may be needed to finish some of the event quests. It's also a needed item to be able to participate in the Theater Mechanicus event, which is how you will be getting the currency to buy things at the Xiao market.
To make 1 Xiao lantern, you will need to get 3 different materials:
Lantern Fiber, obtainable from harvesting plants out in the world.
Wick Material, found on hilichurl-type enemies and fatui elites.
Plaustrite Shard, from mining, Geovishap-type enemies, and Stonehide Lawachurls.