There's no denying that stablecoins are the most successful crypto use case since the dawn of web3 and blockchains. It's by far the one with the most adoption with a market cap of
How do you generate yield with stablecoins?
There are several ways you can make money with stablecoins.
- Lend/Borrow - You could use lending platforms like Aave to lend/borrow against your USDT or USDC and earn yield.
- Provide liquidity - You could also seed liquidity pools on platforms like Curvefi, and earn fees from traders who swap out of those liquidity pools.
- Stake - Some platforms like Coinbase also let you stake your stablecoins to earn rewards.
The only issue here is that these yields can be unpredictable. They fluctuate a lot. To try and solve the problem of low yields, platforms try to do some extra work behind the scenes like some leverage plays with users' money to boost yields. The problem is, sometimes, like with anything involving humans, it could go terribly wrong. Case in point; the failure of Celcius, Luna, Blockfi and others.
Users with some technical knowledge could engage in complex DeFi strategies and achieve higher-than-average yields or find the best opportunities. But only a handful of people with such skills are in a position to do so. Unfortunately, we average users are missing out on those opportunities.\But what if there's a way to level the playing field on stablecoin yield generation?
What is CAP Money?
To understand what CAP Money is, we need to first understand the different types of stablecoin projects in crypto based on how they generate yields for their users.
Type 1 Protocols (Centralized):
These are like hedge funds. The project team basically manages your money and makes all investment decisions. Examples are Yearn Finance or newer generation projects like Ethena. The downside is they can only scale as much as their team can handle.
Type 2 Protocols (Community-based):
In this case, a DAO manages your money instead of just the team. DAO means Decentralized Autonomous Organization, it is made up of selected individuals with voting power to make decisions for the project and its users. No one person makes the decision. Investment decisions are voted on by the DAO members. An example is Sky Protocol or MakerDAO.
Type 3 Protocols (Self-enforcing):
These take a completely different approach to yield generation. Rather than have the team or a DAO manage user money and source yields, the protocol outsources yield generation to various professional institutions called Operators or agents. There are established clear rules enforced by smart contracts which eliminate the need for human intervention. The protocol also uses restaking protocols for security. What all this does is offer guaranteed yields that can scale much larger.
CAP is the first type 3 stablecoin protocol. It is built on MegaETH, a highly performant and very fast Ethereum L2 blockchain. What that means is that CAP is built on a blockchain that enables it to provide more efficient capital allocation and yield generation, faster transactions, and better user experience.
Cap Money's Three-Component Model
Minters
Users who hold the cUSD stablecoin that comes with a fully redeemable guarantee of 1:1 with USDC/USDT. Minters can stake their cUSD to earn yield.
Operators
Entities that generate yield and must prove themselves worthy by beating a hurdle rate set by smart contracts. These include banks, financial institutions, trading firms, and DeFi protocols.
Restakers
Provide security to the operators' activity via restaking of Ethereum and therefore protect the stablecoin holders. They earn premiums for this service.
How Cap Money Works
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Minting cUSD:
A user deposits USDC or USDT to mint cUSD at a 1:1 ratio. This cUSD can be restaked to earn yield or used as a dollar-pegged stablecoin in various applications.
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Operator Application:
An institutional player (like a bank or HFT firm) who meets the hurdle rate (e.g., 40%) set by CAP applies to be an operator. If accepted, they can borrow funds from CAP and use them in yield-generating strategies. But only if they are covered by a recognised restaker delegation.
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Delegation Process:
The institution must first be whitelisted into CAP and then convince restakers to delegate to them. The value of the delegation limits how much capital operators are able to access.
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Capital Access:
Once the institution is "covered" by delegations, they can withdraw USDC from the collateral pool to execute their proprietary strategy.
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Yield Distribution:
By the end of the loan term, the institution distributes yield to stablecoin holders according to CAP's benchmark yield. They also pay the restakers by the premium they are charged.
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Profit Sharing:
If the benchmark yield is 13%, and the premium is 2%, the institution gets to keep the delta, which would be 25% in this example (assuming they generated 40% returns).
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Interest Accumulation:
The stablecoin holder that staked cUSD now accumulates interest from the operator's activities, which can be realized at any time.
What happens if an operator defaults on their loan?
As a user (minter), you are pretty much guaranteed your money back because even if an operator does something that causes them to lose the money they borrowed. In this case, the restaker that vouched for them gets slashed, and users get paid with the restakers money. This is all handled automatically by smart contracts using Eigenlayer's restaking protocol. The slashed restaker now has the responsibility of filing legal course against the operator to get their money back.
Using CAP is like having access to many professional investment firms with extra security measures built in. They come to borrow your money and deploy in strategies beyond crypto to generate yield. By simply depositing in CAP, you're effectively tapping into the total global market value across major assets like stocks, commodity, real estate, infrastructure, bonds etc., which is estimated to be over $200 trillion, and with very low risk. This is what CAP unlocks. Isn't that exciting?
CAP Money is currently on testnet, and will launch when MegaETH goes live on mainnet.
This piece is for educational purposes and not financial advice. Hope you found it useful.
