Franklin Templeton leads seed round into stablecoin startup looking 'outsource' yield generation for users

Franklin Templeton has led an $8 million seed round into Cap, a blockchain startup looking to launch an interest-bearing stablecoin and accompanying lending market. Other investors include prominent financial institutions Susquehanna and Triton Capital as well as crypto natives including Nomura’s Laser Digital and GSR, among others. 

The funding round follows a $1.1 million community round on the crowdfunding platform Echo, created by Jordan “Cobie” Fish. Previous angel investors in Cap include prominent members of the so-called “MegaETH Mafia,” venture capitalist Spencer Noon, LayerZero founder Bryan Pellegrino, Blockworks founder Jason Yanowitz and investors associated with platforms like EtherFi, Steakhouse Financial and Meteoria. 

Cap is deploying its core protocol using the “shared security marketplace” EigenLayer, which allows users to reuse the security generated from staked assets across multiple platforms. The solution ultimately settles on Ethereum, but “will focus its growth and usage” on MegaETH, the nascent Ethereum Layer 2 designed as an alternative to the “rollup centric” universe. 

According to a blog post, Cap’s stablecoin protocol “outsources” yield generation to provide “market-set rates” by tapping into the “restaking market” as well as the returns generated by “operators” of “all different shapes and sizes” including HFT firms, private equity shops, RWA protocols, DeFi protocols, and liquid funds.

Minters deposit USDC or USDT to create cUSD, which can then be staked for yield or used as a dollar-pegged asset. Operators, including TradFi institutions and DeFi natives, borrow this capital to execute yield-generating strategies while restakers provide security by delegating locked ETH, earning premiums in return.

In other words, Cap will enable institutions like Franklin Templeton to borrow stablecoins from users by providing them interest. The protocol will take a 10% fee on the yield users earn, which will fluctuate with market conditions. Additionally, Cao will require borrowers to take out “loan insurance” to ensure that stablecoin lenders are fully repaid in the event of a default.

“Novel opportunities do not come without risk, which is why it is important to understand the risks inherent to CAP,” the team wrote, noting CAP and its users may be exposed to restaking platform risk, potential stablecoin depegs, third-party bridge risks (if moving cUSD off Ethereum) and smart contract risks given that it “does not rely on custodians, regulations, or other human systems to protect users.”

Interest-generating stablecoins and dollar-pegged money market funds are a fast-growing sector of the “real-world asset” sector, including the billion-dollar BUIDL fund from BlackRock. U.S. lawmakers, currently pushing forward on stablecoin rules, appear to disfavor yield-bearing assets and may look to block them in the country via legislation.