Cap is a covered credit platform aimed at democratizing access to safe yield for digital dollars. It is a three-sided platform that consists of a digital dollar, a credit engine, and a financial guarantee market, integrating them into a single unified system. The digital dollar aggregates dollar deposits, such as tokenized money market funds and payment stablecoins. These reserve assets are lent to institutions via our credit platform to generate yield for depositors. Cap’s financial guarantee market underwrites each individual loan to protect dollar depositors from default risk.

Cap investors include:

Digital Dollar

All USD-denominated deposits on Cap are aggregated into cUSD, Cap’s digital dollar. Users receive 1 cUSD for every dollar they deposit into Cap. USD depositors are protected from borrower default by financial guarantees issued on Cap’s platform.

Credit Engine

Cap relies on a diverse set of institutions, called operators, to generate yield on the reserve assets of its digital dollar (cUSD). Institutions self-select in and out of borrowing from Cap as their ability to meet borrowing costs fluctuate based on each institution's internal and external variables. Relying on a large set of market actors improves Cap’s ability to generate yield in various market conditions. A full list of our partner institutions can be found here.

Financial Guarantee Market

Cap uses an automated financial guarantee market to underwrite each loan to institutions from its credit engine. Operators seeking to borrow from Cap must first receive coverage via the market. This coverage is given in the form of escrowed capital that can be retrieved if operators default. Every coverage provider chooses which loan and counterparty to underwrite, and are only exposed to the risk of that counterparty’s default. In return, they receive a fixed return constantly streamed in USD-denominated assets.

All functions of Cap’s financial guarantee market are automated by smart contracts on the Ethereum blockchain, minimizing trust assumptions for every participant in the system.

Legal agreements are signed between coverage providers and borrowers to create recourse for coverage providers should defaults occur. Read more about our financial guarantee market here.

Yield Opportunity for Underwriters

Alternative assets with low opportunity costs are used to underwrite USD loans on Cap’s credit platform. This allows the holders of these alternative assets to earn the delta between unsecured lending premiums on USD and secured lending premiums on USD. Given that market premiums on unsecured lending for alternative assets such as ETH, BTC, JPY, and Gold can be lower than this delta, Cap presents a valuable yield opportunity for these assets.

Assets used to underwrite loans at Cap must fully cover the value of loans. As such, all loans are overcollateralized by this coverage. Each asset has its own required loan to value. Volatile assets like ETH and BTC have a lower LTV than established currencies like SGD. Despite this overcollateralization, guarantee premiums at Cap can still satisfy the market premiums for these assets.

Assets that have risk free yield opportunities, like ETH staking or fiat sovereign debt, may rehypothecate their deposits to earn yield on top of their underwriting premium using these opportunities.

For a more detailed analysis of why underwriters choose Cap, see our “Why Cap? Financial Guarantees” article.

Risk and Reward Dynamic for Underwriters

Asset holders that underwrite loans for regulated financial institutions can rely on a fixed return on their assets, which is guaranteed by the credit of the institutions that they underwrite. To the extent that underwriters choose reputable institutions, this yield guarantee can be strong. The risk taken by underwriters is that of default.

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