Cap: Verifiable Money, Verifiable Credit

The Private Credit Problem

Private credit grew from roughly $2 trillion in 2020 to $3.5 trillion today, the fastest growing asset class of the cycle. Banks retreated from middle market lending after 2008, and private credit funds filled a real gap: businesses needed capital, investors needed yield, and no adequate market existed to connect them.

The infrastructure underneath did not scale with the market. Particularly, most of the current stress sits in direct lending, private loans to PE-backed midmarket companies.

The failures arrived first. In September 2025, Tricolor Holdings collapsed after pledging roughly $800 million of the same auto loans to multiple lenders at once; JPMorgan took a $170 million charge-off. The same month, First Brands Group filed for bankruptcy, its founder later charged with defrauding lenders of billions through faked invoices and double and triple pledged collateral.

Then investors ran. In February 2026, Blue Owl permanently ended redemptions on its OBDC II fund. In March, BlackRock's HPS Corporate Lending Fund met roughly half of $1.2 billion in withdrawal requests, Morgan Stanley's North Haven fund returned 45.8 cents on the dollar of tender requests, and Blackstone's BCRED disclosed a surge in withdrawals.

Regulators and incumbents are now responding the same way: by demanding to see more. The Federal Reserve has asked major banks to detail their private credit exposure, and the Financial Stability Board named opaque valuations and complex funding structures as vulnerabilities to broader markets. Meanwhile, Apollo is moving its credit funds to monthly NAV reporting and working toward daily marks, and JPMorgan has begun independently marking down software debt pledged to it as collateral. The direction of travel is from quarterly marks toward daily ones.

Underneath the headlines are four infrastructure problems.

1. Portfolio opacity. Portfolios are priced quarterly by the managers who originated the loans. There is no independent mark-to-market and no public tape, so deterioration stays invisible until a payment is missed, surfacing only through proxies: payment in kind, where borrowers pay interest with more debt instead of cash, now accounts for roughly 8% of BDC investment income, double pre-2020 levels. That opacity now collateralizes new debt: in NAV lending, funds borrow against their own manager marked portfolio values, stacking leverage on the already opaque portfolios.

2. Liquidity mismatch. Most private credit capital is locked in closed-end funds and cannot run. The mismatch lives in semi-liquid vehicles, roughly $250 billion offering quarterly redemptions against loans with multi-year maturities. When requests spike, the only tool is the gate, which is exactly what 2026 delivered.

3. Collateral trust. Collateral is tracked through bilateral agreements and borrower self reporting, so double pledging is discovered retroactively in bankruptcy court. Tricolor and First Brands were not sophisticated schemes. They were simple frauds that no single lender could see, because no shared record existed of what had been pledged to whom.

4. Concentrated allocation. A small number of managers must each deploy tens of billions, and deployment pressure pushes them toward the same large deals on the same soft terms. The result shows up twice. Software makes up 20 to 30% of direct lending portfolios, versus 4 to 5% of high yield bonds. And covenants have been negotiated away: over 90% of new issuance in the broadly syndicated loan market is covenant-lite, and the erosion is spreading into larger private deals.When covenants disappear, defaults arrive without warning.

The root cause is the same across all four: private credit is built on trust in intermediaries rather than verification of facts. Lenders trust managers to price accurately. Managers trust borrowers to report honestly. Investors trust that redemption windows will hold. When trust breaks, there is no shared source of truth to resolve it quickly. Only lawyers, courts, and time.

The argument is not that private credit is a broken asset class. Private credit will survive this cycle. Blackstone's defense is also fair: loans are senior secured with substantial equity cushions, fund leverage is low, realized losses have averaged about 1% over 20 years, and the 2026 gates worked as designed, preventing forced selling. Goldman's BDC met every first quarter request.

The open question is whether the next $3.5 trillion of growth happens on the same infrastructure, or on something better.

Cap's Innovation: Verification and Market Design Over Trust

The private credit market's problems are not one-off accidents. The history of financial crises is in large part a history of misaligned incentives. Originators who don't hold the loans they make have little reason to underwrite carefully. Fund managers who price their own portfolios have little reason to mark them down. Borrowers who self report collateral have every reason to overstate it. Private credit did not create these problems, but it concentrated them, scaled them, and masked them with the label of "institutional grade."

Audits and regulation help, but they are periodic inspections of a system that remains opaque between inspections. The stronger fix is a credit market where incentives are aligned by design, where honest behavior is the dominant strategy for every participant, not because anyone is well intentioned but because the rules make dishonesty expensive. Cap's answer is a covered credit protocol where underwriting, borrowing, and lending are separated and enforced by code and game theory rather than by institutional relationships.

The mechanism is simple. Underwriters, entities holding alternative assets like Bitcoin, ETH, or tokenized real world assets, escrow collateral into the protocol to backstop institutional borrowers. Those borrowers gain access to unsecured credit lines funded by lenders depositing stablecoins. The underwriter's escrowed collateral is the first loss buffer: if a borrower defaults, the collateral is liquidated before lenders absorb any loss. Every guarantee, every collateral position, every borrower exposure is visible onchain in real time.

Each participant profits from the mechanism. Underwriters earn yield on otherwise idle capital, and that capital at risk is their incentive to perform real due diligence. Borrowers get cheaper, faster access to credit. Lenders get better risk adjusted returns with verifiable protection. The positive sum structure is what makes the design durable.

This inverts existing private credit infrastructure. Traditional private credit concentrates risk invisibly in centralized fund managers. Cap distributes it among underwriters, each siloed, accountable, and staking verifiable capital to vouch for specific borrowers. The same assets cannot be double pledged across multiple obligations because the escrow is onchain. There is no bilateral agreement to fake and no quarterly NAV to massage.

The design gives Cap the following properties:

1. Safe, democratized yield. Cap delivers covered yield to anyone with a stablecoin, not just the pension funds and insurers with the minimum tickets and the right relationships. Investor safety is embedded in the protocol through overcollateralized, escrowed guarantees. Downside is borne by the underwriters who priced and accepted it.

2. Competitive yield.

3. Verifiability. Every guarantee in the Cap marketplace is enforceable because it is automated by smart contracts. Any lender can verify collateral in real time, permissionlessly.

4. Speed. Traditional credit infrastructure is slow by design: a letter of credit takes five to ten days to process, a syndicated loan takes weeks to arrange, a redemption gate takes a board meeting to announce. Settlement in Cap is atomic. The speed of credit should match the speed of commerce.

5. Siloed risk. Each underwriter backs specific borrowers with specific escrowed capital. A Bitcoin miner backstopping a crypto market maker has zero exposure to a real estate fund backstopping a trade finance borrower. Risk is siloed within each guarantee, removing the contagion risk commonly seen in pooled markets.

Most yield bearing stablecoins today are tokenized hedge funds: yield that depends on market conditions, and risk that is ultimately borne by holders who have no visibility into the positions run on their behalf. Cap does not need to be a participant in that market to win. It exists to be the infrastructure for a global, open financial system, where underwriters and borrowers across geographies can be bridged via a neutral protocol. The market sets the price and the code enforces the rules.

Cap Participants Today

Cap's credit marketplace is live and growing. The protocol has reached a peak TVL of $500 million and processed $5.6 billion in cumulative transfer volume, with 30 borrowers onboarded, and 22 underwriters onboarded, as of July 2026.

Underwriters

Institutions holding alternative collateral assets, e.g. BTC, ETH, and tokenized RWAs have demand to put the collateral to work. However, yield opportunities on these assets have been compressing, and it is even harder to find opportunities that are not speculative nor volatile within the crypto market. Cap provides an opportunity for them to get exposure to predictable institutional-grade yield, where Underwriters proactively specify the Borrower counterparty, risk premium and guarantor agreements to mitigate risk.

Borrowers

The near term borrower base is crypto market makers, CEXs, OTC desks, vaults, solvers, fixed rate operators, RWA platforms, and BNPL providers running crypto credit card products. What they share is a need for on demand working capital, the same need that drives any business to a credit line. The existing options for crypto native institutions are either overcollateralized DeFi loans that tie up trading capital, or bilateral bank relationships that are slow, gated by relationships, and geographically limited. Cap gives them a third option: unsecured credit, backed not by their own collateral but by an underwriter's guarantee, available onchain without a syndication timeline.

Lenders

After a series of blowups and hacks, today's DeFi users and neobanks are in a flight to safety. Concretely, the yield requirement for these users involve: 1) verifiable protection mechanism against unsecured lending or black-box products and 2) instant redeemability. Cap offers competitive yield from institutional loans while being protected by Underwriter collateral. To date, Cap has been supplying 5%+ autocompounding APR with no liquidation events or redemption issues.

What Cap Can Be: The Full Participant Universe

The current participant base is the starting point. The migration of traditional finance participants to Cap will be driven by economic rationality rather than ideological conviction, and the most credible expansion path runs through participants who already use private credit today.

We envision four participant types in the long term universe of Cap: underwriters, borrowers, lenders, and curators.

Underwriters

The underwriter role maps directly onto existing financial functions, providing the protocol with both capital depth and institutional legitimacy. These participants consolidate into two primary categories.

Asset-rich entities: Digital asset treasuries, corporate treasuries, credit hedge funds, and ultimately sovereign wealth and real estate funds that hold significant alternative assets and seek USD yield. As the tokenization of real world assets accelerates, these portfolios can increasingly serve as collateral, allowing a broader spectrum of entities to underwrite credit against emerging asset classes.

Underwriting experts: Insurance companies, surety firms, export credit agencies, and commodity trading houses possess deep credit expertise but are constrained by legacy, paper heavy processes. According to ICISA, trade credit insurance and surety covered roughly €5 trillion in commercial credit commitments in 2024. These institutions specialize in risk assessment; Cap serves as their digital native deployment channel, replacing opaque claims adjudication with atomic, onchain settlement.

Integrating diverse underwriters ensures the protocol is not reliant on a single capital source. As government backed export credit agencies and established insurers participate, they bring the regulatory legitimacy required for institutional adoption at scale.

Borrowers

The borrower universe for Cap starts with the sectors that already borrow from private credit funds today. These are established borrower bases whose current infrastructure has exactly the verification problems described above.

• Specialty finance and asset-based lending. Auto lenders, consumer lenders, and equipment finance companies fund themselves through the warehouse facilities and securitizations. This is the segment where onchain collateral escrow is most directly valuable: the same receivables cannot be pledged twice, and lenders see the collateral in real time rather than in a monthly borrowing base certificate.

• Trade finance and supply chain. The global trade finance gap stands at $2.5 trillion, per the Asian Development Bank's 2025 survey. SMEs face high rejection rates from correspondent banking chains; underwriter backed credit lines allow them to bypass that friction.

• Receivables financing. Businesses face liquidity gaps from payment cycles that run 30 to 90 days. Global factoring and receivables finance turned over more than €4 trillion in 2025 (FCI). On-demand liquidity against verifiable receivables reduces the cost of capital relative to traditional factoring.

• Emerging market fintechs. Fintechs in underserved regions have local distribution and underwriting expertise but struggle to access wholesale USD funding. Many already borrow from private credit funds at a premium. A direct connection to global capital lets them scale without the cost and gatekeeping of legacy funding.

• Infrastructure and project development. Developers routinely need bridge financing for the 6 to 24 month gap before long term project bonds are arranged, a niche private credit already serves. Time bound, underwriter backed facilities fit the same need with faster arrangement.

Further out, the same rails extend to sectors with no crypto connection at all: media companies financing content production, healthcare operators financing equipment, technology firms raising non-dilutive growth capital outside restrictive bank covenants. The point is that any institutional borrower that needs working capital and can be underwritten can, in principle, borrow on verifiable rails.

Lenders

Dollars are moving onchain at an accelerating pace. Bank deposit tokens, regulated stablecoins, and embedded wallets are turning onramping from a crypto niche into default financial plumbing, and every dollar that arrives needs a productive place to sit. Cap is the marketplace where that liquidity meets verifiable credit yield. In order of proximity:

• Retail savers via interfaces: WeChat Pay, M-Pesa, Nubank, and Revolut users number in the hundreds of millions and earn near nothing on idle balances. The path to them runs through interfaces they already use, with Cap as the yield layer underneath.

• Corporate treasuries: US corporations hold trillions in cash and short term investments parked in T-bills and money market funds. stcUSD competes for a slice of that allocation

• Insurers and pensions: The core of today's LP base already owns this asset class, and the IMF has warned that their complex, leveraged private credit holdings could produce larger than expected losses under stress. Real time, verifiable collateral converts their biggest disclosure problem into a feature.

• Banks: As banks launch deposit tokens and stablecoins, Cap can absorb those deposits to provide an additional layer of yield. A retail customer clicks "save", the bank's vault allocates to Cap, the customer earns private credit yields and never touches a blockchain.

Curators

Curators do not meaningfully exist in traditional private credit, where assessment is done by analysts employed by loan originators or by rating agencies paid by the issuers they rate. On Cap, curators are independent analysts who advise underwriters, publish recommendations onchain, and earn fees on the accuracy of a public, immutable track record.

• Onchain credit firms. M11 Credit and Credora operate in this capacity today. A recent deal shows the full stack: EtherFi escrowed restaked ETH and delegated credit authority to M11 Credit, which directed the delegation to FalconX, an institutional loan originator. Three specialists, connected by open rails rather than proprietary relationships.

• Credit rating agencies. Cap gives their methodology an onchain distribution channel where assessments feed directly into underwriter decisions, and every recommendation is publicly traceable to outcomes. A clean bill of health that preceded a fraud is visible forever.

• Development finance institutions. The IFC and regional development banks can provide credit analysis and partial guarantees for emerging market borrowers, de-risking curator recommendations and channeling private capital where it otherwise wouldn't reach.

• Audit firms. The long term formalization of the layer: real time attestation of borrower financials, feeding verified data into the marketplace.

Protocol Roadmap: The Flywheel

A mature Cap marketplace functions autonomously: borrower demand drives lender yield, which attracts deposits and lowers credit costs. A second, more durable loop reinforces the first: regulatory clarity. As institutional frameworks mature, traditional finance participants will enter the ecosystem. This influx of diverse, regulated entities reduces concentration risk and makes the protocol resilient to any individual participant's exit.

The protocol can evolve in several ways to accelerate the flywheel:

• Underwriter diversity. Broaden underwriters across geographies, asset types, and credit verticals so the system does not depend on any single capital source.

• Structured guarantees. Make guarantees more granular through co-guarantee and tranching models, letting smaller underwriters participate via first loss and second loss splits and accommodating senior and junior risk preferences.

• Automated scoring. As onchain borrowing history accumulates, build portable onchain credit scores that reduce reliance on manual due diligence.

• Dynamic pricing. Evolve fee auctions toward real time borrower and underwriter bidding, replacing negotiated bilateral deals with market clearing rates.

• Risk decomposition. Modularize risk so specialized underwriters can independently price collateral volatility, duration mismatch, and borrower credit risk.

• Secondary markets. Enable secondary markets for fixed term facilities, letting lenders sell positions before maturity and permanently resolving the liquidity mismatch.

• Privacy preserving verification. Use zero-knowledge proofs so institutional participants can verify solvency and collateral sufficiency without exposing sensitive positions on a public ledger.

Conclusion

Private credit's 2026 stress is not a verdict on the asset class. It is a verdict on its infrastructure. Quarterly marks, self reported collateral, and gated redemptions were tolerable when the market was small. At $3.5 trillion, with regulators asking banks to quantify their exposure, incumbents racing from quarterly marks toward daily ones, and retail investors discovering what a redemption gate means, the problems are increasingly hard to ignore.

Cap's proposition is that the fix is not more trust but less need for it. Escrowed, onchain guarantees make collateral verifiable. Siloed underwriting keeps risk where it was priced. Open rails let anyone, from a DeFi user to a bank treasury desk, lend against protection they can check themselves. The participants who already run this market, the specialty lenders, the insurers, the trade finance houses, the rating agencies, all have a role on these rails that pays them better than the one they hold today.

The private credit market will continue to evolve. Cap is building the version where every guarantee is verifiable, and where every incentive is aligned.