Breaking the Endogenous Cycle: How CAP Reconstructs the Stablecoin Yield Paradigm?

Written by: KarenZ, Foresight News

In the evolution of DeFi, most stablecoin designs have long been constrained by the shackles of endogenous yield models. The yields of mainstream stablecoins heavily rely on the economic cycles within the protocol—whether it is the "flywheel effect" created by token incentive emissions or the value closed loop formed by user transaction fees, they essentially self-consume like the "Ouroboros," making it difficult to break through the protocol boundaries for scalable growth and unable to withstand the systemic risks of market cycles.

In contrast to this closed loop is the exploration of exogenous yields. Exogenous yields come from economic activities outside the protocol, such as arbitrage, MEV, and RWA. These yields were previously monopolized by financial institutions and high-net-worth players, but CAP is positioning itself as a "stablecoin engine backed by trusted financial guarantees," breaking this deadlock by introducing sources of exogenous yields and risk transfer mechanisms. This article will introduce CAP's positioning, core mechanisms, yield logic, and industry impact.

What is CAP?

CAP (Covered Agent Protocol) is an innovative protocol that shifts the sources of stablecoin yields from within the protocol to external markets. Its core goal is to transform institutional-level exogenous yields (such as MEV, arbitrage, RWA) into robust yields accessible to ordinary users through an agency mechanism and a shared security network.

Unlike traditional stablecoins that rely on token incentives or single collateral models, CAP achieves automated capital allocation and risk management through smart contracts, constructing a complete closed loop of "yield generation - risk isolation - value distribution."

In terms of financing, in October 2024, CAP Labs completed a $1.9 million Pre-Seed round of financing, with participation from angel investors including Kraken Ventures, Robot Ventures, ANAGRAM, ABCDE Labs, SCB Limited, and Synthetix founder Kain Warwick. In early April 2025, CAP secured another $11 million in financing, with traditional asset management giants like Franklin Templeton and Triton Capital participating, marking traditional finance's recognition of its model.

Regarding team background, CAP founder Benjamin is a core team member of the stablecoin protocol QiDao. CAP's founding member and CTO Weso is also an advisor and contributor to the DeFi optimization protocol Beefy. Additionally, CAP has been selected for the MegaETH flagship accelerator program "Mega Mafia," although it will launch its core protocol on Ethereum.

CAP's Core Mechanism: The Triad Roles

CAP achieves self-executing capital allocation and security assurance through smart contracts, relying on an agency layer and a shared security model to transfer yield generation risks to re-stakers, protecting stablecoin users from the impacts of strategy failures.

In CAP, there are three main participant roles: Operators, Re-stakers, and Stablecoin Depositors.

Source: CAP

Stablecoin Depositors: Recipients of Low-Risk Yields

Users deposit mainstream stablecoins like USDT/USDC to mint cUSD, earning benchmark loan interest yields. CAP officially states, "cUSD can always be redeemed 1:1." cUSD can also be directly used in DeFi ecosystem scenarios or further staked within the CAP platform to earn yields.

Stablecoin depositors do not need to bear the price volatility of tokens or strategy risks to obtain exogenous yields generated by professional agents, freeing them from the traditional DeFi "high-risk mining" dilemma.

Operators: Capturers of Exogenous Yields

Operators are the agency layer responsible for generating yields. These agents include market makers, banks, high-frequency trading firms, private equity institutions, MEV participants, RWA protocols, and other DeFi protocols, capturing exogenous yields from both crypto-native and real-world assets. CAP's yield generation does not rely on a single strategy but dynamically adapts to market changes through diversified strategies of agents.

Initially, CAP employs a whitelist mechanism for Operators, transitioning to a permissionless model in the future. Each Operator must first obtain "economic security endorsement" from re-stakers (i.e., re-stakers' delegated assets guarantee them) to borrow corresponding stablecoins from the CAP pool to execute yield strategies. The collateral requirements are similar to those in the crypto lending market (e.g., over-collateralization). After paying benchmark yields to stablecoin users and profit-sharing to stakers, Operators retain the remaining yields as incentives.

Re-stakers: Economic Risk Guarantors

Re-stakers delegate assets to specific Operators, providing guarantees for Operators while offering economic security to stablecoin depositors. Re-stakers can earn profit-sharing from Operators but also need to bear the risks of strategy failures.

How are Interest Rates and Yields Determined?

Benjamin, the founder of Cap Labs, stated that the benchmark interest rate paid to stablecoin users is programmatically determined, being the sum of the deposit rates of major lending markets plus CAP's additional utilization rate premium. This utilization rate premium is calculated as a percentage of borrowed capital, indicating the competitiveness of capital allocation under specific market conditions. Agents can choose to enter or exit based on the benchmark rate.

After paying interest rates to stablecoin users and re-stakers, the remaining yields are retained by the agents. This will largely incentivize agents to formulate better yield strategies.

However, if an agent's yield strategy incurs losses or executes malicious operations leading to losses of borrowed funds, a portion of the re-stakers' ETH will be forfeited to cover the losses in the CAP pool, ensuring that cUSD holders do not suffer losses.

In terms of rules, considering that re-stakers bear all economic risks, CAP grants them considerable rights and choices. For example, re-stakers have the final say on which third parties can join the protocol and generate yields; the yield rate for re-stakers (also known as the premium) is determined through negotiation between re-stakers and Operators. Additionally, the premium will be paid in blue-chip assets like ETH and USD, rather than inflationary governance tokens or off-chain points programs.

Interaction Strategy

Currently, CAP supports minting cUSD on the MegaETH testnet. Users can mint 1000 testnet-cUSD at a time. CAP has released a page for minting cUSD with USDC on the Ethereum mainnet, but it is not yet interactive.

Conclusion

The emergence of CAP marks a transition of stablecoins from "endogenous cycles" to "exogenous value capture." Through exogenous yields and a shared security model, CAP not only enhances the sustainability of DeFi yields but also strengthens user protection through risk isolation. With the integration of RWA and institutional participants, CAP may become a key infrastructure connecting traditional finance and DeFi.

It is important to note that CAP's operation heavily relies on the reliability of smart contracts, making smart contract risk its core potential challenge. According to official disclosures, the protocol is currently being audited by security firms such as Zellic and Trail of Bits, and the Pre-Mainnet version has passed an audit by Electisec. Furthermore, since CAP is built on shared security networks like EigenLayer, continuous attention must be paid to the potential risk transmission within the related ecosystem.

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