diff --git a/compiler/src/dotty/tools/dotc/typer/Inferencing.scala b/compiler/src/dotty/tools/dotc/typer/Inferencing.scala
index 6f65d81c1635..7654b98995ff 100644
--- a/compiler/src/dotty/tools/dotc/typer/Inferencing.scala
+++ b/compiler/src/dotty/tools/dotc/typer/Inferencing.scala
@@ -499,28 +499,30 @@ object Inferencing {
     propagate(accu(SimpleIdentityMap.empty, tp))
   }
 
+  /** Run the transformation after dealiasing but return the original type if it was a no-op. */
+  private def derivedOnDealias(tp: Type)(transform: Type => Type)(using Context) = {
+    val dealiased = tp.dealias
+    val transformed = transform(dealiased)
+    if transformed eq dealiased then tp // return the original type, not the result of dealiasing
+    else transformed
+  }
+
   /** Replace every top-level occurrence of a wildcard type argument by
     *  a fresh skolem type. The skolem types are of the form $i.CAP, where
     *  $i is a skolem of type `scala.internal.TypeBox`, and `CAP` is its
     *  type member. See the documentation of `TypeBox` for a rationale why we do this.
     */
-  def captureWildcards(tp: Type)(using Context): Type = tp match {
+  def captureWildcards(tp: Type)(using Context): Type = derivedOnDealias(tp) {
     case tp @ AppliedType(tycon, args) if tp.hasWildcardArg =>
-      tycon.typeParams match {
-        case tparams @ ((_: Symbol) :: _) =>
-          val boundss = tparams.map(_.paramInfo.substApprox(tparams.asInstanceOf[List[TypeSymbol]], args))
-          val args1 = args.zipWithConserve(boundss) { (arg, bounds) =>
-            arg match {
-              case TypeBounds(lo, hi) =>
-                val skolem = SkolemType(defn.TypeBoxClass.typeRef.appliedTo(lo | bounds.loBound, hi & bounds.hiBound))
-                TypeRef(skolem, defn.TypeBox_CAP)
-              case arg => arg
-            }
-          }
-          tp.derivedAppliedType(tycon, args1)
-        case _ =>
-          tp
+      val tparams = tycon.typeParamSymbols
+      val args1 = args.zipWithConserve(tparams.map(_.paramInfo.substApprox(tparams, args))) {
+        case (TypeBounds(lo, hi), bounds) =>
+          val skolem = SkolemType(defn.TypeBoxClass.typeRef.appliedTo(lo | bounds.loBound, hi & bounds.hiBound))
+          TypeRef(skolem, defn.TypeBox_CAP)
+        case (arg, _) =>
+          arg
       }
+      if tparams.isEmpty then tp else tp.derivedAppliedType(tycon, args1)
     case tp: AndOrType => tp.derivedAndOrType(captureWildcards(tp.tp1), captureWildcards(tp.tp2))
     case tp: RefinedType => tp.derivedRefinedType(captureWildcards(tp.parent), tp.refinedName, tp.refinedInfo)
     case tp: RecType => tp.derivedRecType(captureWildcards(tp.parent))
diff --git a/compiler/src/dotty/tools/dotc/typer/Typer.scala b/compiler/src/dotty/tools/dotc/typer/Typer.scala
index 6728cab6f3d0..556287da5221 100644
--- a/compiler/src/dotty/tools/dotc/typer/Typer.scala
+++ b/compiler/src/dotty/tools/dotc/typer/Typer.scala
@@ -3160,7 +3160,7 @@ class Typer extends Namer
    */
   def adapt(tree: Tree, pt: Type, locked: TypeVars, tryGadtHealing: Boolean = true)(using Context): Tree =
     try
-      trace(i"adapting $tree to $pt ${if (tryGadtHealing) "" else "(tryGadtHealing=false)" }\n", typr, show = true) {
+      trace(i"adapting $tree to $pt ${if (tryGadtHealing) "" else "(tryGadtHealing=false)" }", typr, show = true) {
         record("adapt")
         adapt1(tree, pt, locked, tryGadtHealing)
       }
diff --git a/tests/pos/i12739-fallout.scala b/tests/pos/i12739-fallout.scala
new file mode 100644
index 000000000000..7f685b3c1a0f
--- /dev/null
+++ b/tests/pos/i12739-fallout.scala
@@ -0,0 +1,8 @@
+// This is a minimisation of the fallout that the original fix caused on Shapeless 3.
+
+type Foo = { type Bar }
+
+extension (foo: Foo)
+  def toBar(): foo.Bar = ???
+
+def test(foo: Foo): foo.Bar = foo.toBar()
diff --git a/tests/pos/i12739.scala b/tests/pos/i12739.scala
new file mode 100644
index 000000000000..baf7a7ae2698
--- /dev/null
+++ b/tests/pos/i12739.scala
@@ -0,0 +1,26 @@
+object X {
+
+  class CA[A]
+  type C = CA[_]
+  val c: C = ???
+  def f[A](r: CA[A]) = ()
+  def g(): CA[_] = CA()
+  def h(): C = ???
+
+  // works
+  f(c)
+
+  // works
+  val x = c.asInstanceOf[C]
+  f(x)
+
+  // was: error
+  f(c.asInstanceOf[C])
+
+  // works, error in Scala 2
+  f(c.asInstanceOf[c.type])
+
+  f(c.asInstanceOf[CA[_]])
+  f(g())
+  f(h())
+}