diff --git a/simapp/app.go b/simapp/app.go
index 86830256f16b..da06b9edbaf6 100644
--- a/simapp/app.go
+++ b/simapp/app.go
@@ -288,8 +288,11 @@ func NewSimApp(
 
 	// NOTE: The genutils moodule must occur after staking so that pools are
 	// properly initialized with tokens from genesis accounts.
+	// NOTE: Capability module must occur first so that it can initialize any capabilities
+	// so that other modules that want to create or claim capabilities afterwards in InitChain
+	// can do so safely.
 	app.mm.SetOrderInitGenesis(
-		auth.ModuleName, distr.ModuleName, staking.ModuleName, bank.ModuleName,
+		capability.ModuleName, auth.ModuleName, distr.ModuleName, staking.ModuleName, bank.ModuleName,
 		slashing.ModuleName, gov.ModuleName, mint.ModuleName, crisis.ModuleName,
 		ibc.ModuleName, genutil.ModuleName, evidence.ModuleName, transfer.ModuleName,
 	)
@@ -338,6 +341,8 @@ func NewSimApp(
 	// Initialize and seal the capability keeper so all persistent capabilities
 	// are loaded in-memory and prevent any further modules from creating scoped
 	// sub-keepers.
+	// This must be done during creation of baseapp rather than in InitChain so
+	// that in-memory capabilities get regenerated on app restart
 	ctx := app.BaseApp.NewContext(true, abci.Header{})
 	app.CapabilityKeeper.InitializeAndSeal(ctx)
 
diff --git a/x/capability/keeper/keeper.go b/x/capability/keeper/keeper.go
index 47e0b0257e47..48c07ac77678 100644
--- a/x/capability/keeper/keeper.go
+++ b/x/capability/keeper/keeper.go
@@ -130,6 +130,18 @@ func (k *Keeper) InitializeAndSeal(ctx sdk.Context) {
 	k.sealed = true
 }
 
+// InitializeIndex sets the index to one in InitChain
+// Since it is an exported function, we check that index is indeed unset, before initializing
+func (k Keeper) InitializeIndex(ctx sdk.Context) {
+	// set the global index to start at 1 if it is unset
+	index := k.GetLatestIndex(ctx)
+	if index != 0 {
+		return
+	}
+	store := ctx.KVStore(k.storeKey)
+	store.Set(types.KeyIndex, types.IndexToKey(1))
+}
+
 // GetLatestIndex returns the latest index of the CapabilityKeeper
 func (k Keeper) GetLatestIndex(ctx sdk.Context) uint64 {
 	store := ctx.KVStore(k.storeKey)
diff --git a/x/capability/keeper/keeper_test.go b/x/capability/keeper/keeper_test.go
index 6f5214bc03f9..ba3d58d053df 100644
--- a/x/capability/keeper/keeper_test.go
+++ b/x/capability/keeper/keeper_test.go
@@ -21,6 +21,7 @@ type KeeperTestSuite struct {
 	suite.Suite
 
 	ctx    sdk.Context
+	app    *simapp.SimApp
 	keeper *keeper.Keeper
 }
 
@@ -32,6 +33,7 @@ func (suite *KeeperTestSuite) SetupTest() {
 	// create new keeper so we can define custom scoping before init and seal
 	keeper := keeper.NewKeeper(cdc, app.GetKey(capability.StoreKey), app.GetMemKey(capability.MemStoreKey))
 
+	suite.app = app
 	suite.ctx = app.BaseApp.NewContext(checkTx, abci.Header{Height: 1})
 	suite.keeper = keeper
 }
@@ -93,6 +95,16 @@ func (suite *KeeperTestSuite) TestNewCapability() {
 	suite.Require().Nil(cap)
 }
 
+func (suite *KeeperTestSuite) TestOriginalCapabilityKeeper() {
+	got, ok := suite.app.ScopedIBCKeeper.GetCapability(suite.ctx, "invalid")
+	suite.Require().False(ok)
+	suite.Require().Nil(got)
+
+	port, ok := suite.app.ScopedIBCKeeper.GetCapability(suite.ctx, "ports/transfer")
+	suite.Require().True(ok)
+	suite.Require().NotNil(port)
+}
+
 func (suite *KeeperTestSuite) TestAuthenticateCapability() {
 	sk1 := suite.keeper.ScopeToModule(bank.ModuleName)
 	sk2 := suite.keeper.ScopeToModule(staking.ModuleName)
diff --git a/x/capability/module.go b/x/capability/module.go
index 1ee89573c4b4..c2a3fb18ecdc 100644
--- a/x/capability/module.go
+++ b/x/capability/module.go
@@ -98,7 +98,10 @@ func (am AppModule) RegisterInvariants(_ sdk.InvariantRegistry) {}
 
 // InitGenesis performs the capability module's genesis initialization It returns
 // no validator updates.
-func (am AppModule) InitGenesis(_ sdk.Context, _ codec.JSONMarshaler, _ json.RawMessage) []abci.ValidatorUpdate {
+func (am AppModule) InitGenesis(ctx sdk.Context, _ codec.JSONMarshaler, _ json.RawMessage) []abci.ValidatorUpdate {
+	// Initialize global index to 1
+	am.keeper.InitializeIndex(ctx)
+
 	return []abci.ValidatorUpdate{}
 }