How CAP enables stablecoin users to earn institutional-grade returns effortlessly?
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How CAP enables stablecoin users to earn institutional-grade returns effortlessly?
Breaking the Endogenous Cycle: How Cap is Restructuring the Stablecoin Yield Paradigm?
Navigating Web3 tides with focused insightsBy KarenZ, Foresight News
In the evolution of DeFi, most stablecoin designs have long been constrained by endogenous yield models. The yields of mainstream stablecoins heavily rely on internal protocol economics — whether it's the "flywheel effect" created by token incentive emissions or the value loop formed by user transaction fees — essentially consuming themselves like an Ouroboros, struggling to scale beyond protocol boundaries and unable to withstand systemic risks across market cycles.
In contrast, exogenous yield represents a new frontier. Exogenous yield originates from economic activities outside the protocol, such as arbitrage, MEV, and RWA. These revenue streams were previously monopolized by financial institutions and high-net-worth players. CAP, positioning itself as a "stablecoin engine with trusted financial guarantees," breaks this barrier by introducing external yield sources and a risk transfer mechanism. This article explores CAP’s positioning, core mechanisms, yield logic, and industry implications.
What is CAP?
CAP (Covered Agent Protocol) is an innovative protocol that shifts stablecoin yield generation from internal protocol dynamics to external markets. Its core goal is to transform institutional-grade exogenous yields — such as MEV, arbitrage, and RWA — into accessible and stable returns for ordinary users through agent-based mechanisms and a shared security network.
Unlike traditional stablecoins that depend on token incentives or single-collateral models, CAP uses smart contracts to automate capital allocation and risk management, establishing a complete closed loop of “yield generation - risk isolation - value distribution.”
On the funding front, in October 2024, CAP Labs raised $1.9 million in a Pre-Seed round led by Kraken Ventures, Robot Ventures, ANAGRAM, ABCDE Labs, SCB Limited, and Kain Warwick, founder of Synthetix. In early April 2025, CAP secured an additional $11 million in funding, with traditional asset management giants Franklin Templeton and Triton Capital participating — a clear signal of traditional finance validating its model.
Regarding team background, CAP’s founder Benjamin was a core member of the stablecoin protocol QiDao. Weso, CAP’s co-founder and CTO, is also an advisor and contributor to Beefy, a DeFi optimization protocol. Additionally, CAP has been selected into MegaETH’s flagship accelerator program “Mega Mafia,” though its core protocol will launch on Ethereum.
CAP’s Core Mechanism: The Three Roles
CAP enables self-executing capital allocation and security via smart contracts, leveraging an agent layer and shared security model to shift yield-generation risks onto restakers, thereby protecting stablecoin users from losses due to strategy failures.
The system primarily consists of three key participants: Operators, restakers, and stablecoin depositors.
Source: CAP
Stablecoin Depositors: Recipients of Low-Risk Yield
Users deposit mainstream stablecoins like USDT/USDC to mint cUSD and earn a base lending rate yield. According to CAP, “cUSD can always be redeemed at a 1:1 ratio.” cUSD can also be used directly within DeFi ecosystems or further staked within the CAP platform to earn additional yield.
Stablecoin depositors gain access to exogenous yields generated by professional agents without bearing any price volatility or strategy risk, breaking free from the traditional DeFi paradigm of “high-risk farming.”
Operators: Capturers of Exogenous Yield
Operators form the agent layer responsible for generating yield. These agents include market makers, banks, high-frequency trading firms, private equity institutions, MEV participants, RWA protocols, and other DeFi protocols — all aiming to capture exogenous yield from both crypto-native and real-world assets. CAP does not rely on a single strategy; instead, it dynamically adapts to market changes through diversified agent strategies.
In its initial phase, CAP employs a whitelist model for Operators, gradually transitioning toward a permissionless model. Each Operator must first obtain “economic security backing” from restakers (i.e., assets delegated by restakers as collateral) before borrowing stablecoins from the CAP pool to execute yield strategies. Collateral requirements resemble those in crypto lending markets (e.g., over-collateralization). After paying the base yield to stablecoin users and sharing profits with restakers, Operators keep the remaining yield as incentive.
Restakers: Providers of Economic Security
Restakers delegate their assets to specific Operators, providing economic security both for the Operators and for stablecoin depositors. Restakers earn a share of the Operators’ yield but also bear the risk if a strategy fails.
How Are Interest Rates and Yields Determined?
Benjamin, founder of Cap Labs, explained that the base interest rate paid by agents to stablecoin users is programmatically determined — the sum of major lending market deposit rates plus a utilization premium set by CAP. This utilization premium, calculated as a percentage of borrowed capital, reflects the competitiveness of capital deployment under specific market conditions. Agents may choose to enter or exit based on this base rate.
After paying stablecoin users and restakers, Operators retain any remaining yield — strongly incentivizing them to develop superior yield strategies.
However, if an Operator incurs losses or engages in malicious activity leading to a shortfall in borrowed funds, part of the restaker’s ETH will be slashed to cover the loss in the CAP pool, ensuring cUSD holders suffer no losses.
Given that restakers bear all economic risk, CAP grants them significant rights and discretion. For example, restakers have final say over which third parties can join the protocol and generate yield. The restaking yield (also known as the premium) is negotiated between restakers and Operators. Moreover, premiums are paid in blue-chip assets such as ETH and USD, not inflationary governance tokens or off-chain points programs.
Interaction Strategy
Currently, CAP supports minting cUSD on the MegaETH testnet. Users can mint 1,000 testnet-cUSD per transaction. CAP has launched a page for minting cUSD with USDC on the Ethereum mainnet, though it is not yet interactive.
Summary
CAP marks a pivotal shift in stablecoins — from “endogenous loops” to “exogenous value capture.” By integrating exogenous yield and a shared security model, CAP enhances both the sustainability of DeFi yields and user protection through risk isolation. As RWA and institutional participants onboard, CAP could become a key infrastructure bridging traditional finance and DeFi.
It should be noted that CAP’s operation heavily depends on the reliability of smart contracts, making smart contract risk its primary potential challenge. According to official disclosures, the protocol is currently undergoing audits by security firms Zellic and Trail of Bits. The Pre-Mainnet version has already passed audit by Electisec. Furthermore, since CAP is built atop shared security networks like EigenLayer, ongoing attention must be paid to potential risk contagion from these ecosystems.
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