Welcome to the protocol highlight of the month.

At Artemis, we aim to bring light to crypto and highlight real businesses in crypto.®

Today, we interview DeFi Dave, Head of Growth at Cap Labs. Dave has a background in projects like Frax, Dinero/Redacted, Gelato, and IQ (formerly Everipedia).

Hi DeFi Dave! Can you share about your journey with Cap? How did you come to join Cap, and what inspired you to take on this role?

I joined Cap in January of this year. I was immediately struck by its ambitious vision and genuine innovation of stablecoins using restaking. Of course, an idea is only as good as the people around it which is why I believe that the team surrounding Cap is truly the cream of the crop. We all have years of DeFi experience and come from storied protocols such as Frax, Beefy, and QiDAO.

You have a background in projects like Frax, Dinero/Redacted, Gelato, and IQ (formerly Everipedia). In addition, you ran the Flywheel podcast for a few years and wrote a number of articles for The Defiant. How has that experience shaped your approach to building Cap?

Great question. The experience I have built up has been an incredibly crypto native one. I first entered the space in 2017 but only really started to develop my voice in it in 2020 with the advent of DeFi Summer. I think what set me apart was not only was I a user of these protocols but I could articulate what it was like to use them in a way that was not pure jargon. Not to mention, I was and still am to a degree an active member of the conference circuit where I have been fortunate enough to develop deep relationships with builders, traders, and everyone in between. What I have been able to contribute at Cap is a culmination of lessons built up over years sticking in the space.

What makes Cap different from other stablecoin protocols, like Ethena or Aave? For example, how does Cap's three-pronged marketplace (users, operators, restakers) set it apart in terms of yield generation, scalability, and risk management?

What sets Cap apart is that it is the first Type III Stablecoin which uses the power of market dynamics to outsource yield generation & risk management to professionals. There is no need to depend on an internal team running a strategy and instead, these professionals are the operators (market makers and trading shops) who have edge and restakers who have capital that is used to underwrite the entire system. Restaking is the real kicker here because it is the first instance of the mechanism being used to guarantee the underlying principal of the stablecoin in a fully onchain manner. This means that users are always protected from downside risk.

Can you explain the core mechanics of Cap in simple terms? Walk us through how users mint cUSD, how restakers (e.g. EtherFi, Renzo) underwrite the protocol, and how operators (e.g., market makers like Wintermute) borrow capital to generate yield.

Users mint cUSD with USDC in a PSM (Peg Stability Module). In the meantime, a restaker vouches for an operator by delegating their capital (wstETH, LBTC, etc.) to them which acts as collateral to access the USDC underlying the Cap protocol. Once the delegation is received, the operator can borrow the USDC to run their respective strategy that was due diligenced by the restaker. The operator will then payback the borrow from the Cap protocol (which is akin to an overcollateralized Aave loan), pay premium fees to the restaker for their delegation (which range between 1-4%). What makes Cap’s system so powerful is that operators are able to borrow at no cost of capital, giving them to grow their AUM in the most efficient way possible. Any risks associated with yield generation are shifted from the user to the restaker who has the resources to go after the operator in case anything happens.

Risk management seems central to Cap. How do off-chain legal agreements between restakers and operators provide recourse (e.g., in case of failure or disappearance)? What happens if an operator defaults, and how does Cap handle scenarios where these agreements aren't enforceable?

We strongly encourage all restakers and operators to sign a legal agreement before engaging with each other. This legal agreement ensures that a restaker can take recourse against an operator in case of default. Restakers are organizations with the resources to take action like this as opposed to scattered individuals. Most importantly, stablecoin holders remain protected and the protocol fully solvent.

What's something surprising about Cap that most people wouldn't know?

Our team has years of crypto experience between us with our founder Benjamin previously founding QiDAO and our CTO Weso & devs coming from the beloved yield aggregation protocol Beefy Finance. We have all been through the worst of environments onchain whether it be bridge hacks, depegs, etc. and were tired of seeing users going through the ringer like that. DeFi needed to evolve which is why we are all very excited to build Cap. Speaking of evolving, we have caught the eye of TradFi with Franklin Templeton leading our seed round with participation from IMC Trading, Flow Traders, and other regulated trading shops among others. They see the value of Cap not only as investors, but most importantly as users.

Artemis Disclaimer: The authors, affiliates, or stakeholders of Artemis may hold interests in the tokens or protocols mentioned in this content. This disclosure highlights potential conflicts of interest and is not an endorsement to buy or invest in any specific token or protocol. The content is for educational and informational purposes only and should not be construed as investment advice in any form.

Readers should approach this information cautiously and consider their unique circumstances before making investment decisions. The views and opinions expressed are subject to change without notice, and Artemis bears no liability for any loss or damage arising from the use of this information.

‍