How can I fireblock basement wall

Question

I am finishing my basement. I am about to build my wall and wondering what is the easiest way to fireblock (to stop vertical movement of fire).

Options:

1. Use 1/2 inch drywall from sill plate to front of new wall stud. If I do this there will be a gap between sill plate and front edge of concrete blocks (basement exterior wall). How to fill this?
2. Fill the space between sill plate and new wood wall with fiberglass batting.

I prefer #2 but anyone done that and has pictures on what that should look like?

Here is what my wall looks like right now