October 22, 2024: Yes Cap🧢 🚌
A look at CAP Labs, the latest from Benjamin of Qi DAO
It’s bussin’, no cap, no cap… fr…
A post the other week caught our attention, partly because they appeared to be name squatting our newsletter’s research wing…
You’d had our curiosity… but when we learned the project was the brainchild of DeFi gigabrain Benjamin918_… you gained our attention.
Ben previously came across our radar through his outstanding work running Qi DAO. Qi DAO, which operates the innovative cross-chain $MAI stablecoins, has appeared many times in this newsletter. Most notably, after a horrendous depeg incident on Fantom, Benjamin and his intrepid team would lead the stablecoin to a repeg, a difficult and commendable feat!
For more background on Benjamin, he joined us for a Llama Party last year…
June 1, 2023: Benjamin @ Qi DAO🦙🥳
Frens, join us at 8 AM PT for a live llama party featuring Benjamin of Qi DAO!
What do we know about the new CAP that’s cappin’ our cap? Let’s recap…
We have relatively little public information to go off of at this point. The website boasts of a “stablecoin engine for unreachable yield.” The bulk of the public data is via a blog post:
The blog post recaps some of the big problems facing DeFi…
Token Flywheels: Often time decentralized stablecoin growth is limited by reliance on DEX emissions, estimated at half a billion USD per year.
Ourobouros: With few models targeting exogenous sources, stablecoins have a ceiling of the available endogenous capital
Users Last: Among the numerous hacks, exploits, and rug pulls in DeFi, retail users nearly always end up holding the short end of the stick.
CAP LABS posits CAP LABS as the solution. The team plans to launch a variety of denominations of stablecoins (USD, BTC, ETH) that earn outsized yield from more complex strategies such as arbitrage, MEV, and RWAs.
The source of the yield is in this case not meant to be “you” as might happen in the typical Ouroboros style. They describe “a competitive network of agents” that compete to beat the median rate. We don’t yet have specifics about how these agents operate, but it reminds us loosely of the auction market for block builders.
Otherwise, their stablecoins are redeemable and backed 1:1 with bluechip stablecoins (stablecoin trilemma again disproved?) We expect CAP Labs to bake in years of lessons learnt from operating Qi DAO, so we have a good degree of confidence the team will be outstanding at holding the peg.
A newer concept they introduce is to build atop shared security networks like EigenLayer:
“By leveraging the coverage model of security delegations, CAP will shield end users (stablecoin holders) from the risk of yield generation by agents. This novel arrangement will result in restakers and agents collaborating to vet the risks and rewards of all strategies fueling value creation at CAP.”
We imagine this is how they expect to provide more security than the median stablecoin. Though their blog post scoffs at the cliche of DYOR, we’d still urge readers to take an extra ounce of caution and research before aping.
They break down the competitive landscape, in which they primarily compete on factors of decentralization and fully insured yield.
It will also be run by the MegaETH Mafia…
Mega Mafia
As boomers, we’re often a bit clueless about some of the terms Gen Z throws around, so we were unfamiliar with MegaETH. It turns out it’s kind of a big deal, invested in by Vitalik among others.
MegaETH is designed to become an Ethereum L2 that delivers real-time performance on par with Web2 systems, aiming for over 100K transactions per second.
Their whitepaper does a good job describing how MegaETH pushes hardware limits, offering high transaction throughput, significant compute capacity, and millisecond response times.
“Naturally, this raises the question: is the secret behind MegaETH merely a beefy centralized sequencer? The answer is no.”
MegaETH achieves its real-time performance through key technical innovations.
For example, MegaETH uses node specialization, whereby sequencer nodes handle transaction execution on high-end servers, while full nodes validate using proofs, significantly reducing overhead. By storing the entire blockchain state in RAM, it eliminates SSD read latency, enabling faster state access.
Additionally, MegaETH implements parallel execution engines and explores advanced techniques like multicore processing, AOT/JIT compilation, and a stateless validation scheme. These optimizations allow MegaETH to achieve millisecond response times, high transaction throughput, and real-time feedback loops even under heavy loads. We recommend you read through the full white paper which is easier to follow than our summary suggests.
The important thing is that MegaETH is smart, and CAP Labs is tapping into the so-called “MegaETH Mafia” to execute these arbitrage strategies. They’ll be minting their stablecoin onto Ethereum, with automations for MegaETH to make it the primary stablecoin for this chain with all the major dApps integrating with CAP Labs.
Strategies will also be able to executed on any chain. The team is workshopping a concept of “multiblock-flashloans” — by which the agents can utilize capital for up to a maximum block to execute strategies. This limit is currently 17.5 days (the contemplated withdraw time for EigenLayer delegations).
We chatted with Benjamin to confirm the details of this article and asked for some extra alfa outside the white paper. He let slip:
“We were invested by SCB Limited. To most, that doesn’t ring any bells. But they're the crypto arm of SIG (the second largest HFT firm in the world). They're gonna be helping us with yield generation via proprietary strats”
Might be something? DYOR…
Fyi, MAI did NOT repeg!