Cap Protocol Gains Momentum with Innovative Dual-Token Stablecoin System

Covered Agent Protocol launches cUSD and stcUSD on Ethereum mainnet, offering yield-bearing stablecoins with full downside protection

Cap, officially known as the Covered Agent Protocol ^[1], has emerged as a groundbreaking stablecoin platform that is reshaping how users interact with digital dollars. The protocol launched on Ethereum mainnet in August 2024, introducing two innovative stablecoin products: the dollar-denominated cUSD ^[2] and the yield-bearing stcUSD ^[3], both designed to provide credible financial guarantees through sophisticated risk management systems.

Dual-Token Architecture Addresses Market Gaps

Cap is a stablecoin protocol that provides credible financial guarantees via two products: the dollar-denominated cUSD and the yield-bearing stcUSD. The protocol's innovative approach addresses key limitations in the current stablecoin landscape by combining the stability of traditional dollar-pegged assets with yield generation capabilities.

The foundation of the system is cUSD, a digital dollar issued on the Ethereum blockchain that can be used on any network. cUSD's reserve is backed by blue chip stablecoins such as USDC, USDT, pyUSD, BUIDL, and BENJI, i.e. issued by regulated institutions with transparent attestations. It is 1:1 redeemable for any of the available reserve assets.

Revolutionary Yield Generation with Risk Coverage

The protocol's most innovative feature is stcUSD, a savings product issued by staking cUSD. Any cUSD holder has open access to stcUSD. Yield is generated via an autonomous layer of operators, who self-select in and out based on the current hurdle rate of the protocol. The risk of yield generation is covered, meaning users have full downside protection that is verifiable by code.

The yield-bearing version stcUSD — minted by staking cUSD — is enabled by a three-party system of lenders, operators, and restakers. Cap's core innovation lies in its structure: operators borrow stablecoins to deploy yield strategies, restakers underwrite the operator's credit risk.

EigenLayer Integration and Risk Management

Cap's sophisticated risk management system leverages EigenLayer's restaking infrastructure ^[4] to provide unprecedented security guarantees. stcUSD is a separate ERC-4626 vault token, which users can mint by staking cUSD. The yield is generated through a marketplace of borrowing and restaking, not directly from Cap Labs.

This structure ensures that while users can access yield opportunities, the protocol maintains strict separation between the core stablecoin functionality and yield generation activities, providing multiple layers of protection for user funds.

Market Adoption and Trading Integration

The protocol has gained significant traction since its launch, with cUSD becoming available for trading on major platforms. Notably, Starting on January 29, 2026, PENDLE ^[5] will give rewards to users holding cUSD. Incentive programs like these often bring more people to use both tokens, indicating growing institutional support and integration with key DeFi protocols like Pendle Finance, the world's largest crypto yield trading platform.

The integration with Pendle allows users to trade yield derivatives on cUSD, providing additional flexibility for yield optimization and risk management strategies.

Technical Innovation and Transparency

Cap's approach represents a significant advancement in stablecoin design, particularly in how it handles yield generation risks. Unlike traditional yield-bearing stablecoins that expose users to protocol risks, Cap's covered agent model ensures that users have full downside protection that is verifiable by code.

The protocol's three-party system creates a sustainable marketplace where operators compete to provide yield strategies, restakers provide risk coverage, and users can access returns without direct exposure to the underlying strategy risks.

Institutional Backing and Strategic Partnerships

Cap's credibility and growth trajectory have been significantly bolstered by backing from prominent institutional investors and strategic partners. The protocol has secured funding from Triton Capital, a leading venture capital firm specializing in blockchain and financial technology investments. The protocol's advisory and investment consortium includes several prestigious financial institutions and technology companies:

IMC Trading ^[12]: A leading global market maker and proprietary trading firm with expertise in algorithmic trading and risk management.

Flow Traders ^[11]: A prominent liquidity provider and technology-driven trading firm specializing in ETPs, bonds, and currencies.

SCB Limited ^[10]: Susquehanna Crypto is a leading global proprietary digital asset trading firm.

Laser Digital (Nomura Group) ^[9]: The digital asset subsidiary of Nomura Holdings, Japan's largest investment bank, bringing traditional finance expertise and regulatory knowledge.

GSR ^[8]: A leading crypto market maker and algorithmic trading firm providing liquidity solutions.

Franklin Templeton ^[7]: One of the world's largest asset managers with over $1.5 trillion in assets under management, lending significant institutional credibility to the project.

Triton Capital ^[6]: Investment Fund (early stage).

This diverse backing represents a convergence of traditional finance expertise, cutting-edge trading technology, and deep crypto market knowledge. The involvement of established institutions like Nomura Group through Laser Digital and Franklin Templeton particularly signals growing institutional confidence in Cap's innovative approach to stablecoin design and risk management.

Future Outlook

As the stablecoin market continues to expand and mature, Cap's dual-token model addresses critical needs for both stability and yield generation. The protocol's innovative risk coverage mechanism and integration with major DeFi platforms like Pendle suggest strong potential for continued growth and adoption.

The combination of regulatory-compliant collateral backing, code-verifiable risk protection, and competitive yield generation positions Cap as a significant innovation in the evolving stablecoin landscape.