diff --git a/compiler/fir/analysis-tests/tests/org/jetbrains/kotlin/fir/FirOldFrontendDiagnosticsTestGenerated.java b/compiler/fir/analysis-tests/tests/org/jetbrains/kotlin/fir/FirOldFrontendDiagnosticsTestGenerated.java
index 730cea22a34..aa58bbfcf0d 100644
--- a/compiler/fir/analysis-tests/tests/org/jetbrains/kotlin/fir/FirOldFrontendDiagnosticsTestGenerated.java
+++ b/compiler/fir/analysis-tests/tests/org/jetbrains/kotlin/fir/FirOldFrontendDiagnosticsTestGenerated.java
@@ -9154,11 +9154,26 @@ public class FirOldFrontendDiagnosticsTestGenerated extends AbstractFirOldFronte
                 runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/typeParameterBounds.kt");
             }
 
+            @TestMetadata("unsafeVarianceInAliasedFunctionalType.kt")
+            public void testUnsafeVarianceInAliasedFunctionalType() throws Exception {
+                runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceInAliasedFunctionalType.kt");
+            }
+
+            @TestMetadata("unsafeVarianceOnInputTypeOfFunctionalType.kt")
+            public void testUnsafeVarianceOnInputTypeOfFunctionalType() throws Exception {
+                runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceOnInputTypeOfFunctionalType.kt");
+            }
+
             @TestMetadata("unsafeVarianceStar.kt")
             public void testUnsafeVarianceStar() throws Exception {
                 runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceStar.kt");
             }
 
+            @TestMetadata("unsafeVarianceWithRecursiveGenerics.kt")
+            public void testUnsafeVarianceWithRecursiveGenerics() throws Exception {
+                runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceWithRecursiveGenerics.kt");
+            }
+
             @TestMetadata("varargs.kt")
             public void testVarargs() throws Exception {
                 runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/varargs.kt");
diff --git a/compiler/fir/fir2ir/tests/org/jetbrains/kotlin/codegen/ir/FirBlackBoxCodegenTestGenerated.java b/compiler/fir/fir2ir/tests/org/jetbrains/kotlin/codegen/ir/FirBlackBoxCodegenTestGenerated.java
index 3a1e1f060c9..8f787d5a445 100644
--- a/compiler/fir/fir2ir/tests/org/jetbrains/kotlin/codegen/ir/FirBlackBoxCodegenTestGenerated.java
+++ b/compiler/fir/fir2ir/tests/org/jetbrains/kotlin/codegen/ir/FirBlackBoxCodegenTestGenerated.java
@@ -12105,6 +12105,11 @@ public class FirBlackBoxCodegenTestGenerated extends AbstractFirBlackBoxCodegenT
         public void testLastExpressionOfLambdaWithNothingConstraint() throws Exception {
             runTest("compiler/testData/codegen/box/inference/lastExpressionOfLambdaWithNothingConstraint.kt");
         }
+
+        @TestMetadata("unsafeVarianceCodegen.kt")
+        public void testUnsafeVarianceCodegen() throws Exception {
+            runTest("compiler/testData/codegen/box/inference/unsafeVarianceCodegen.kt");
+        }
     }
 
     @TestMetadata("compiler/testData/codegen/box/inlineClasses")
diff --git a/compiler/testData/codegen/box/inference/unsafeVarianceCodegen.kt b/compiler/testData/codegen/box/inference/unsafeVarianceCodegen.kt
new file mode 100644
index 00000000000..2e415b0b9ec
--- /dev/null
+++ b/compiler/testData/codegen/box/inference/unsafeVarianceCodegen.kt
@@ -0,0 +1,11 @@
+class A<out K> {
+    fun foo(x: @UnsafeVariance K): K = x
+}
+
+fun test(a: A<*>): Any? {
+    return a.foo("OK")
+}
+
+fun box(): String {
+    return test(A<String>()) as String
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceInAliasedFunctionalType.kt b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceInAliasedFunctionalType.kt
new file mode 100644
index 00000000000..67afde5e957
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceInAliasedFunctionalType.kt
@@ -0,0 +1,13 @@
+// FIR_IDENTICAL
+
+class Foo<out T>(val baz: Baz<T>)
+
+class Bar {
+    val foo: Foo<*> = TODO()
+
+    fun <T> bar(): Baz<T> {
+        return foo.baz
+    }
+}
+
+typealias Baz<T> = (@UnsafeVariance T) -> Unit
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceInAliasedFunctionalType.txt b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceInAliasedFunctionalType.txt
new file mode 100644
index 00000000000..01f7cd0c46f
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceInAliasedFunctionalType.txt
@@ -0,0 +1,19 @@
+package
+
+public final class Bar {
+    public constructor Bar()
+    public final val foo: Foo<*>
+    public final fun </*0*/ T> bar(): Baz<T> /* = (@kotlin.UnsafeVariance T) -> kotlin.Unit */
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
+
+public final class Foo</*0*/ out T> {
+    public constructor Foo</*0*/ out T>(/*0*/ baz: Baz<T> /* = (@kotlin.UnsafeVariance T) -> kotlin.Unit */)
+    public final val baz: Baz<T> /* = (@kotlin.UnsafeVariance T) -> kotlin.Unit */
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
+public typealias Baz</*0*/ T> = (@kotlin.UnsafeVariance T) -> kotlin.Unit
diff --git a/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceOnInputTypeOfFunctionalType.kt b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceOnInputTypeOfFunctionalType.kt
new file mode 100644
index 00000000000..99226caf5f7
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceOnInputTypeOfFunctionalType.kt
@@ -0,0 +1,22 @@
+// FIR_IDENTICAL
+// !DIAGNOSTICS: -UNUSED_PARAMETER -REDUNDANT_PROJECTION
+
+class FunctionHolder<out T : Any>(val f: (@UnsafeVariance T) -> Unit) {
+    fun f2(v: @UnsafeVariance T) {}
+}
+
+fun caller(
+    holder1: FunctionHolder<out Any>,
+    holder2: FunctionHolder<*>,
+    holder3: FunctionHolder<Any>,
+    a: Any
+) {
+    holder1.f(a)
+    holder1.f2(a)
+
+    holder2.f(a)
+    holder2.f2(a)
+
+    holder3.f(a)
+    holder3.f2(a)
+}
diff --git a/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceOnInputTypeOfFunctionalType.txt b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceOnInputTypeOfFunctionalType.txt
new file mode 100644
index 00000000000..e04eb5fe61e
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceOnInputTypeOfFunctionalType.txt
@@ -0,0 +1,12 @@
+package
+
+public fun caller(/*0*/ holder1: FunctionHolder<out kotlin.Any>, /*1*/ holder2: FunctionHolder<*>, /*2*/ holder3: FunctionHolder<kotlin.Any>, /*3*/ a: kotlin.Any): kotlin.Unit
+
+public final class FunctionHolder</*0*/ out T : kotlin.Any> {
+    public constructor FunctionHolder</*0*/ out T : kotlin.Any>(/*0*/ f: (@kotlin.UnsafeVariance T) -> kotlin.Unit)
+    public final val f: (@kotlin.UnsafeVariance T) -> kotlin.Unit
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public final fun f2(/*0*/ v: @kotlin.UnsafeVariance T): kotlin.Unit
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
diff --git a/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceStar.fir.kt b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceStar.fir.kt
deleted file mode 100644
index 10f4635a1d4..00000000000
--- a/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceStar.fir.kt
+++ /dev/null
@@ -1,10 +0,0 @@
-// !WITH_NEW_INFERENCE
-
-interface A<out K> {
-    fun foo(x: @UnsafeVariance K): Unit
-}
-
-fun test(a: A<*>) {
-    a.foo(null)
-    a.foo(Any())
-}
diff --git a/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceStar.kt b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceStar.kt
index facd768483e..ce24a2ed5a6 100644
--- a/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceStar.kt
+++ b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceStar.kt
@@ -1,10 +1,10 @@
-// !WITH_NEW_INFERENCE
+// FIR_IDENTICAL
 
 interface A<out K> {
     fun foo(x: @UnsafeVariance K): Unit
 }
 
 fun test(a: A<*>) {
-    a.foo(<!NI;NULL_FOR_NONNULL_TYPE!>null<!>)
-    a.foo(<!NI;TYPE_MISMATCH!>Any()<!>)
+    a.foo(null)
+    a.foo(Any())
 }
diff --git a/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceWithRecursiveGenerics.fir.kt b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceWithRecursiveGenerics.fir.kt
new file mode 100644
index 00000000000..e13533974c9
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceWithRecursiveGenerics.fir.kt
@@ -0,0 +1,11 @@
+interface UpdatableRendering<out T : UpdatableRendering<T>> {
+    fun canUpdateFrom(another: @UnsafeVariance T): Boolean
+}
+
+internal fun Any.matchesRendering(other: Any): Boolean {
+    return when {
+        this::class != other::class -> false
+        this !is UpdatableRendering<*> -> true
+        else -> this.<!INAPPLICABLE_CANDIDATE!>canUpdateFrom<!>(other as UpdatableRendering<*>)
+    }
+}
diff --git a/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceWithRecursiveGenerics.kt b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceWithRecursiveGenerics.kt
new file mode 100644
index 00000000000..06f2b52c333
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceWithRecursiveGenerics.kt
@@ -0,0 +1,11 @@
+interface UpdatableRendering<out T : UpdatableRendering<T>> {
+    fun canUpdateFrom(another: @UnsafeVariance T): Boolean
+}
+
+internal fun Any.matchesRendering(other: Any): Boolean {
+    return when {
+        this::class != other::class -> false
+        this !is UpdatableRendering<*> -> true
+        else -> <!DEBUG_INFO_SMARTCAST!>this<!>.canUpdateFrom(other as UpdatableRendering<*>)
+    }
+}
diff --git a/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceWithRecursiveGenerics.txt b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceWithRecursiveGenerics.txt
new file mode 100644
index 00000000000..41d4afd1500
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceWithRecursiveGenerics.txt
@@ -0,0 +1,10 @@
+package
+
+internal fun kotlin.Any.matchesRendering(/*0*/ other: kotlin.Any): kotlin.Boolean
+
+public interface UpdatableRendering</*0*/ out T : UpdatableRendering<T>> {
+    public abstract fun canUpdateFrom(/*0*/ another: @kotlin.UnsafeVariance T): kotlin.Boolean
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
diff --git a/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java b/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java
index b72b48aa1d6..8db309a3585 100644
--- a/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java
+++ b/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java
@@ -9161,11 +9161,26 @@ public class DiagnosticsTestGenerated extends AbstractDiagnosticsTestWithFirVali
                     runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/typeParameterBounds.kt");
                 }
 
+                @TestMetadata("unsafeVarianceInAliasedFunctionalType.kt")
+                public void testUnsafeVarianceInAliasedFunctionalType() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceInAliasedFunctionalType.kt");
+                }
+
+                @TestMetadata("unsafeVarianceOnInputTypeOfFunctionalType.kt")
+                public void testUnsafeVarianceOnInputTypeOfFunctionalType() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceOnInputTypeOfFunctionalType.kt");
+                }
+
                 @TestMetadata("unsafeVarianceStar.kt")
                 public void testUnsafeVarianceStar() throws Exception {
                     runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceStar.kt");
                 }
 
+                @TestMetadata("unsafeVarianceWithRecursiveGenerics.kt")
+                public void testUnsafeVarianceWithRecursiveGenerics() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceWithRecursiveGenerics.kt");
+                }
+
                 @TestMetadata("varargs.kt")
                 public void testVarargs() throws Exception {
                     runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/varargs.kt");
diff --git a/compiler/tests/org/jetbrains/kotlin/checkers/javac/DiagnosticsUsingJavacTestGenerated.java b/compiler/tests/org/jetbrains/kotlin/checkers/javac/DiagnosticsUsingJavacTestGenerated.java
index c1c17db84b0..1aca3b95797 100644
--- a/compiler/tests/org/jetbrains/kotlin/checkers/javac/DiagnosticsUsingJavacTestGenerated.java
+++ b/compiler/tests/org/jetbrains/kotlin/checkers/javac/DiagnosticsUsingJavacTestGenerated.java
@@ -9156,11 +9156,26 @@ public class DiagnosticsUsingJavacTestGenerated extends AbstractDiagnosticsUsing
                     runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/typeParameterBounds.kt");
                 }
 
+                @TestMetadata("unsafeVarianceInAliasedFunctionalType.kt")
+                public void testUnsafeVarianceInAliasedFunctionalType() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceInAliasedFunctionalType.kt");
+                }
+
+                @TestMetadata("unsafeVarianceOnInputTypeOfFunctionalType.kt")
+                public void testUnsafeVarianceOnInputTypeOfFunctionalType() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceOnInputTypeOfFunctionalType.kt");
+                }
+
                 @TestMetadata("unsafeVarianceStar.kt")
                 public void testUnsafeVarianceStar() throws Exception {
                     runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceStar.kt");
                 }
 
+                @TestMetadata("unsafeVarianceWithRecursiveGenerics.kt")
+                public void testUnsafeVarianceWithRecursiveGenerics() throws Exception {
+                    runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/unsafeVarianceWithRecursiveGenerics.kt");
+                }
+
                 @TestMetadata("varargs.kt")
                 public void testVarargs() throws Exception {
                     runTest("compiler/testData/diagnostics/tests/generics/projectionsScope/varargs.kt");
diff --git a/compiler/tests/org/jetbrains/kotlin/codegen/BlackBoxCodegenTestGenerated.java b/compiler/tests/org/jetbrains/kotlin/codegen/BlackBoxCodegenTestGenerated.java
index 7da7444916b..b55a5cb6774 100644
--- a/compiler/tests/org/jetbrains/kotlin/codegen/BlackBoxCodegenTestGenerated.java
+++ b/compiler/tests/org/jetbrains/kotlin/codegen/BlackBoxCodegenTestGenerated.java
@@ -13320,6 +13320,11 @@ public class BlackBoxCodegenTestGenerated extends AbstractBlackBoxCodegenTest {
         public void testLastExpressionOfLambdaWithNothingConstraint() throws Exception {
             runTest("compiler/testData/codegen/box/inference/lastExpressionOfLambdaWithNothingConstraint.kt");
         }
+
+        @TestMetadata("unsafeVarianceCodegen.kt")
+        public void testUnsafeVarianceCodegen() throws Exception {
+            runTest("compiler/testData/codegen/box/inference/unsafeVarianceCodegen.kt");
+        }
     }
 
     @TestMetadata("compiler/testData/codegen/box/inlineClasses")
diff --git a/compiler/tests/org/jetbrains/kotlin/codegen/LightAnalysisModeTestGenerated.java b/compiler/tests/org/jetbrains/kotlin/codegen/LightAnalysisModeTestGenerated.java
index 26b63cfeee3..fd5e8dda73a 100644
--- a/compiler/tests/org/jetbrains/kotlin/codegen/LightAnalysisModeTestGenerated.java
+++ b/compiler/tests/org/jetbrains/kotlin/codegen/LightAnalysisModeTestGenerated.java
@@ -13320,6 +13320,11 @@ public class LightAnalysisModeTestGenerated extends AbstractLightAnalysisModeTes
         public void testLastExpressionOfLambdaWithNothingConstraint() throws Exception {
             runTest("compiler/testData/codegen/box/inference/lastExpressionOfLambdaWithNothingConstraint.kt");
         }
+
+        @TestMetadata("unsafeVarianceCodegen.kt")
+        public void testUnsafeVarianceCodegen() throws Exception {
+            runTest("compiler/testData/codegen/box/inference/unsafeVarianceCodegen.kt");
+        }
     }
 
     @TestMetadata("compiler/testData/codegen/box/inlineClasses")
diff --git a/compiler/tests/org/jetbrains/kotlin/codegen/ir/IrBlackBoxCodegenTestGenerated.java b/compiler/tests/org/jetbrains/kotlin/codegen/ir/IrBlackBoxCodegenTestGenerated.java
index 1040b15813d..7e6fb635db5 100644
--- a/compiler/tests/org/jetbrains/kotlin/codegen/ir/IrBlackBoxCodegenTestGenerated.java
+++ b/compiler/tests/org/jetbrains/kotlin/codegen/ir/IrBlackBoxCodegenTestGenerated.java
@@ -12105,6 +12105,11 @@ public class IrBlackBoxCodegenTestGenerated extends AbstractIrBlackBoxCodegenTes
         public void testLastExpressionOfLambdaWithNothingConstraint() throws Exception {
             runTest("compiler/testData/codegen/box/inference/lastExpressionOfLambdaWithNothingConstraint.kt");
         }
+
+        @TestMetadata("unsafeVarianceCodegen.kt")
+        public void testUnsafeVarianceCodegen() throws Exception {
+            runTest("compiler/testData/codegen/box/inference/unsafeVarianceCodegen.kt");
+        }
     }
 
     @TestMetadata("compiler/testData/codegen/box/inlineClasses")
diff --git a/core/descriptors/src/org/jetbrains/kotlin/types/TypeSubstitutor.java b/core/descriptors/src/org/jetbrains/kotlin/types/TypeSubstitutor.java
index af389bed94e..b2c9a80996b 100644
--- a/core/descriptors/src/org/jetbrains/kotlin/types/TypeSubstitutor.java
+++ b/core/descriptors/src/org/jetbrains/kotlin/types/TypeSubstitutor.java
@@ -26,6 +26,7 @@ import org.jetbrains.kotlin.descriptors.annotations.CompositeAnnotations;
 import org.jetbrains.kotlin.descriptors.annotations.FilteredAnnotations;
 import org.jetbrains.kotlin.name.FqName;
 import org.jetbrains.kotlin.resolve.calls.inference.CapturedTypeConstructorKt;
+import org.jetbrains.kotlin.types.checker.NewCapturedTypeConstructor;
 import org.jetbrains.kotlin.types.model.TypeSubstitutorMarker;
 import org.jetbrains.kotlin.types.typeUtil.TypeUtilsKt;
 import org.jetbrains.kotlin.types.typesApproximation.CapturedTypeApproximationKt;
@@ -91,7 +92,7 @@ public class TypeSubstitutor implements TypeSubstitutorMarker {
         }
 
         try {
-            return unsafeSubstitute(new TypeProjectionImpl(howThisTypeIsUsed, type), 0).getType();
+            return unsafeSubstitute(new TypeProjectionImpl(howThisTypeIsUsed, type), null, 0).getType();
         } catch (SubstitutionException e) {
             return ErrorUtils.createErrorType(e.getMessage());
         }
@@ -121,14 +122,18 @@ public class TypeSubstitutor implements TypeSubstitutorMarker {
         }
 
         try {
-            return unsafeSubstitute(typeProjection, 0);
+            return unsafeSubstitute(typeProjection, null, 0);
         } catch (SubstitutionException e) {
             return null;
         }
     }
 
     @NotNull
-    private TypeProjection unsafeSubstitute(@NotNull TypeProjection originalProjection, int recursionDepth) throws SubstitutionException {
+    private TypeProjection unsafeSubstitute(
+            @NotNull TypeProjection originalProjection,
+            @Nullable TypeParameterDescriptor typeParameter,
+            int recursionDepth
+    ) throws SubstitutionException {
         assertRecursionDepth(recursionDepth, originalProjection, substitution);
 
         if (originalProjection.isStarProjection()) return originalProjection;
@@ -141,6 +146,7 @@ public class TypeSubstitutor implements TypeSubstitutorMarker {
 
             TypeProjection substitution = unsafeSubstitute(
                     new TypeProjectionImpl(originalProjection.getProjectionKind(), origin),
+                    typeParameter,
                     recursionDepth + 1
             );
 
@@ -154,14 +160,27 @@ public class TypeSubstitutor implements TypeSubstitutorMarker {
             return originalProjection; // todo investigate
         }
 
-        TypeProjection replacement = substitution.get(type);
+        TypeProjection substituted = substitution.get(type);
+        TypeProjection replacement =
+                substituted != null ?
+                projectedTypeForConflictedTypeWithUnsafeVariance(type, substituted, typeParameter, originalProjection) :
+                null;
+
         Variance originalProjectionKind = originalProjection.getProjectionKind();
         if (replacement == null && FlexibleTypesKt.isFlexible(type) && !TypeCapabilitiesKt.isCustomTypeVariable(type)) {
             FlexibleType flexibleType = FlexibleTypesKt.asFlexibleType(type);
             TypeProjection substitutedLower =
-                    unsafeSubstitute(new TypeProjectionImpl(originalProjectionKind, flexibleType.getLowerBound()), recursionDepth + 1);
+                    unsafeSubstitute(
+                            new TypeProjectionImpl(originalProjectionKind, flexibleType.getLowerBound()),
+                            typeParameter,
+                            recursionDepth + 1
+                    );
             TypeProjection substitutedUpper =
-                    unsafeSubstitute(new TypeProjectionImpl(originalProjectionKind, flexibleType.getUpperBound()), recursionDepth + 1);
+                    unsafeSubstitute(
+                            new TypeProjectionImpl(originalProjectionKind, flexibleType.getUpperBound()),
+                            typeParameter,
+                            recursionDepth + 1
+                    );
 
             Variance substitutedProjectionKind = substitutedLower.getProjectionKind();
             assert (substitutedProjectionKind == substitutedUpper.getProjectionKind()) &&
@@ -225,6 +244,37 @@ public class TypeSubstitutor implements TypeSubstitutorMarker {
         return substituteCompoundType(originalProjection, recursionDepth);
     }
 
+    @NotNull
+    private static TypeProjection projectedTypeForConflictedTypeWithUnsafeVariance(
+            @NotNull  KotlinType originalType,
+            @NotNull TypeProjection substituted,
+            @Nullable TypeParameterDescriptor typeParameter,
+            @NotNull TypeProjection originalProjection
+    ) {
+        if (!originalType.getAnnotations().hasAnnotation(KotlinBuiltIns.FQ_NAMES.unsafeVariance)) return substituted;
+
+        TypeConstructor constructor = substituted.getType().getConstructor();
+        if (!(constructor instanceof NewCapturedTypeConstructor)) return substituted;
+
+        NewCapturedTypeConstructor capturedType = (NewCapturedTypeConstructor) constructor;
+        TypeProjection capturedTypeProjection = capturedType.getProjection();
+        Variance varianceOfCapturedType = capturedTypeProjection.getProjectionKind();
+
+        VarianceConflictType conflictWithTopLevelType = conflictType(originalProjection.getProjectionKind(), varianceOfCapturedType);
+        if (conflictWithTopLevelType == VarianceConflictType.OUT_IN_IN_POSITION) {
+            return new TypeProjectionImpl(capturedTypeProjection.getType());
+        }
+
+        if (typeParameter == null) return substituted;
+
+        VarianceConflictType conflictTypeWithTypeParameter = conflictType(typeParameter.getVariance(), varianceOfCapturedType);
+        if (conflictTypeWithTypeParameter == VarianceConflictType.OUT_IN_IN_POSITION) {
+            return new TypeProjectionImpl(capturedTypeProjection.getType());
+        }
+
+        return substituted;
+    }
+
     @NotNull
     private static Annotations filterOutUnsafeVariance(@NotNull Annotations annotations) {
         if (!annotations.hasAnnotation(KotlinBuiltIns.FQ_NAMES.unsafeVariance)) return annotations;
@@ -275,7 +325,7 @@ public class TypeSubstitutor implements TypeSubstitutorMarker {
             TypeParameterDescriptor typeParameter = typeParameters.get(i);
             TypeProjection typeArgument = typeArguments.get(i);
 
-            TypeProjection substitutedTypeArgument = unsafeSubstitute(typeArgument, recursionDepth + 1);
+            TypeProjection substitutedTypeArgument = unsafeSubstitute(typeArgument, typeParameter, recursionDepth + 1);
 
             switch (conflictType(typeParameter.getVariance(), substitutedTypeArgument.getProjectionKind())) {
                 case NO_CONFLICT:
diff --git a/js/js.tests/test/org/jetbrains/kotlin/js/test/ir/semantics/IrJsCodegenBoxTestGenerated.java b/js/js.tests/test/org/jetbrains/kotlin/js/test/ir/semantics/IrJsCodegenBoxTestGenerated.java
index 8780dedebd5..2fdedd3de0e 100644
--- a/js/js.tests/test/org/jetbrains/kotlin/js/test/ir/semantics/IrJsCodegenBoxTestGenerated.java
+++ b/js/js.tests/test/org/jetbrains/kotlin/js/test/ir/semantics/IrJsCodegenBoxTestGenerated.java
@@ -10385,6 +10385,11 @@ public class IrJsCodegenBoxTestGenerated extends AbstractIrJsCodegenBoxTest {
         public void testLastExpressionOfLambdaWithNothingConstraint() throws Exception {
             runTest("compiler/testData/codegen/box/inference/lastExpressionOfLambdaWithNothingConstraint.kt");
         }
+
+        @TestMetadata("unsafeVarianceCodegen.kt")
+        public void testUnsafeVarianceCodegen() throws Exception {
+            runTest("compiler/testData/codegen/box/inference/unsafeVarianceCodegen.kt");
+        }
     }
 
     @TestMetadata("compiler/testData/codegen/box/inlineClasses")
diff --git a/js/js.tests/test/org/jetbrains/kotlin/js/test/semantics/JsCodegenBoxTestGenerated.java b/js/js.tests/test/org/jetbrains/kotlin/js/test/semantics/JsCodegenBoxTestGenerated.java
index e5847b9229a..a7a886c4d20 100644
--- a/js/js.tests/test/org/jetbrains/kotlin/js/test/semantics/JsCodegenBoxTestGenerated.java
+++ b/js/js.tests/test/org/jetbrains/kotlin/js/test/semantics/JsCodegenBoxTestGenerated.java
@@ -10450,6 +10450,11 @@ public class JsCodegenBoxTestGenerated extends AbstractJsCodegenBoxTest {
         public void testLastExpressionOfLambdaWithNothingConstraint() throws Exception {
             runTest("compiler/testData/codegen/box/inference/lastExpressionOfLambdaWithNothingConstraint.kt");
         }
+
+        @TestMetadata("unsafeVarianceCodegen.kt")
+        public void testUnsafeVarianceCodegen() throws Exception {
+            runTest("compiler/testData/codegen/box/inference/unsafeVarianceCodegen.kt");
+        }
     }
 
     @TestMetadata("compiler/testData/codegen/box/inlineClasses")