diff --git a/AGENTS.md b/AGENTS.md
index 1926f56..47c1048 100644
--- a/AGENTS.md
+++ b/AGENTS.md
@@ -31,8 +31,9 @@ gh project item-list 2 --owner traverse-framework --format json --limit 300 \
 | `llm-mcp-traverse-starter-catalog` | **Blocked** | Traverse #865 (registry #99 closed) |
 | `loop-wf1-registry-deps` | **Done** (#263) | Digest inventory in `docs/loop-registry-deps.md` |
 | `loop-wf1-multi-os` | **Done** (#265) | `apps/loop/` WF1 × 7 OS; compose via `registry_ref` |
-| `retire-registry-ref-materialize` | **In Progress** | Phase A gate/docs; full delete blocked on Traverse BundleEmbedder + Spec 107 |
-| `llm-mcp-embedded-host` | **Ready** | Mode B host on Spec 520 cache (#860 closed) |
+| `retire-registry-ref-materialize` | **Done** (#267) | Phase A gate; host cutover → Future `retire-registry-ref-materialize-hosts` |
+| `retire-registry-ref-materialize-hosts` | **Future** | Full materialize delete after BundleEmbedder + Spec 107 |
+| `llm-mcp-embedded-host` | **In Progress** | Mode B scaffold on Spec 520 cache; live host → Traverse #865 |
 
 Full gap table + wave notes: [`docs/production-reference-plan.md`](docs/production-reference-plan.md).
 
diff --git a/apps/llm-mcp-reference/README.md b/apps/llm-mcp-reference/README.md
index 5ca979e..ce4497b 100644
--- a/apps/llm-mcp-reference/README.md
+++ b/apps/llm-mcp-reference/README.md
@@ -11,6 +11,7 @@ Plan: [`docs/llm-reference-apps-plan.md`](../../docs/llm-reference-apps-plan.md)
 ```text
 apps/llm-mcp-reference/
   README.md                 ← this file
+  mode-b/                   ← Spec 520 prepare/cache scaffold (fail-closed serve)
   shared/
     prompts/system-boundary.md
     workflows/traverse-starter.md
@@ -38,6 +39,14 @@ cargo run -p traverse-mcp -- stdio
 4. Follow `shared/workflows/traverse-starter.md` — submit a note via tools; **only display runtime fields**.
 5. For transcripts, follow `shared/workflows/meeting-notes.md` — concrete `describe_server` → `execute_entrypoint` → `render_execution_report` sequence for `meeting-notes.process`.
 
+## Mode B (scaffold — Spec 520 prepare / verified cache)
+
+Stronger isolation path: prepare registry deps into a **host-owned verified cache**, then serve MCP from that cache — **no App-Refs materialize rewrite**.
+
+See [`mode-b/README.md`](mode-b/README.md), [`mode-b/mcp.json.example`](mode-b/mcp.json.example), and fail-closed [`mode-b/serve.sh`](mode-b/serve.sh).
+
+**Honest status:** Spec 520 library APIs shipped in Traverse (#860). The Mode B MCP host process is **not** upstream yet (Traverse #865). Mode A remains the only runnable LLM path; Mode B launcher exits non-zero until that host exists.
+
 Optional bearer token (execution commands):
 
 ```bash
diff --git a/apps/llm-mcp-reference/mode-b/README.md b/apps/llm-mcp-reference/mode-b/README.md
new file mode 100644
index 0000000..8ec1dab
--- /dev/null
+++ b/apps/llm-mcp-reference/mode-b/README.md
@@ -0,0 +1,77 @@
+# Mode B — MCP → Spec 520 prepare / verified cache (scaffold)
+
+Secondary façade for LLM clients that want **stronger isolation** than Mode A expedition stdio: prepare registry dependencies into a **host-owned verified cache**, then serve MCP from that cache (no App-Refs `materialize` rewrite).
+
+| Layer | Status |
+|---|---|
+| Spec 520 library (`HostRegistryCache`, prepare / offline resolve) | Shipped in Traverse (#860) |
+| Mode B MCP host process (`traverse-mcp` embedded / cache-root serve) | **Not shipped upstream** — see Traverse #865 |
+| This tree | **Scaffold** — docs + fail-closed launcher + example MCP config |
+
+Mode A (`cargo run -p traverse-mcp -- stdio`) remains the only **runnable** LLM path today.
+
+## Contract (prepare → cache → serve)
+
+```text
+LLM client  --MCP stdio-->  mode-b/serve.sh  -->  Traverse Mode B host (when shipped)
+                                  ^
+                                  |
+                     TRAVERSE_MCP_CACHE_ROOT (host-owned verified cache)
+                                  ^
+                                  |
+                     mode-b/prepare-cache.sh  (index sync + Spec 520 prepare docs)
+```
+
+Rules:
+
+1. **No business fields** in this façade — same as Mode A / OS shells.
+2. **No App-Refs materialize** — leave `registry_ref` intact; do not rewrite destination manifests to local `wasm_*` paths here.
+3. **Fail closed** — `serve.sh` must not silently fall back to Mode A expedition stdio (that would mislabel Mode B).
+
+## Env
+
+| Variable | Meaning |
+|---|---|
+| `TRAVERSE_REPO` | Absolute path to Traverse checkout |
+| `TRAVERSE_MCP_CACHE_ROOT` | Host-owned cache directory (you create/own it) |
+| `TRAVERSE_WORKSPACE` | Registry workspace id (default `local-default`) |
+| `TRAVERSE_REGISTRY_TOKEN` | Optional token for private registry sync |
+
+## Prepare (documented)
+
+```bash
+export TRAVERSE_REPO="$(cd ../../../../Traverse && pwd)"   # adjust
+export TRAVERSE_MCP_CACHE_ROOT="${HOME}/.cache/traverse-mcp-mode-b"
+export TRAVERSE_WORKSPACE=local-default
+bash prepare-cache.sh
+```
+
+`prepare-cache.sh` runs public index sync via `traverse-cli` and prints the Spec 520 **library** prepare steps. There is no public one-liner CLI for artifact prepare yet — hosts call:
+
+- Rust: `traverse_embedder::{HostRegistryCache, prepare_registry_dependency, resolve_registry_dependency_offline}`
+- Web (reference): `prepareRegistryDependency` / `resolveRegistryDependencyOffline` from TraverseEmbedder
+
+## Serve (fail-closed until upstream Mode B host)
+
+```bash
+bash serve.sh
+```
+
+Intended upstream shape (not available yet):
+
+```bash
+cargo run -p traverse-mcp -- embedded --cache-root "$TRAVERSE_MCP_CACHE_ROOT"
+# or env-driven offline serve once Traverse ships it
+```
+
+Today `serve.sh` exits non-zero with a clear message. Point LLM clients at Mode A until Traverse lands the Mode B host (umbrella #865).
+
+## MCP client example
+
+See [`mcp.json.example`](mcp.json.example). Absolute paths required.
+
+## Upstream
+
+- Spec 520 / `080-embedded-registry-cache`
+- Traverse issue [#865](https://github.com/traverse-framework/Traverse/issues/865) (Mode B host child)
+- App-Refs Mode A: [`../README.md`](../README.md)
diff --git a/apps/llm-mcp-reference/mode-b/mcp.json.example b/apps/llm-mcp-reference/mode-b/mcp.json.example
new file mode 100644
index 0000000..52c0eee
--- /dev/null
+++ b/apps/llm-mcp-reference/mode-b/mcp.json.example
@@ -0,0 +1,15 @@
+{
+  "mcpServers": {
+    "traverse-mode-b": {
+      "command": "bash",
+      "args": [
+        "/ABS/PATH/TO/App-References/apps/llm-mcp-reference/mode-b/serve.sh"
+      ],
+      "env": {
+        "TRAVERSE_REPO": "/ABS/PATH/TO/Traverse",
+        "TRAVERSE_MCP_CACHE_ROOT": "/ABS/PATH/TO/host-owned-cache",
+        "TRAVERSE_WORKSPACE": "local-default"
+      }
+    }
+  }
+}
diff --git a/apps/llm-mcp-reference/mode-b/prepare-cache.sh b/apps/llm-mcp-reference/mode-b/prepare-cache.sh
new file mode 100755
index 0000000..f53c2c3
--- /dev/null
+++ b/apps/llm-mcp-reference/mode-b/prepare-cache.sh
@@ -0,0 +1,36 @@
+#!/usr/bin/env bash
+# Mode B prepare helper — Spec 520 verified cache supply chain (scaffold).
+# Syncs the public registry index; documents library prepare (no App-Refs materialize).
+set -euo pipefail
+
+if [ -z "${TRAVERSE_REPO:-}" ]; then
+  echo "FAIL: set TRAVERSE_REPO to your Traverse checkout" >&2
+  exit 1
+fi
+if [ -z "${TRAVERSE_MCP_CACHE_ROOT:-}" ]; then
+  echo "FAIL: set TRAVERSE_MCP_CACHE_ROOT to a host-owned cache directory" >&2
+  exit 1
+fi
+
+WORKSPACE="${TRAVERSE_WORKSPACE:-local-default}"
+mkdir -p "$TRAVERSE_MCP_CACHE_ROOT"
+
+echo "OK: TRAVERSE_REPO=$TRAVERSE_REPO"
+echo "OK: TRAVERSE_MCP_CACHE_ROOT=$TRAVERSE_MCP_CACHE_ROOT"
+echo "OK: TRAVERSE_WORKSPACE=$WORKSPACE"
+echo "OK: Mode B does not use App-Refs sync materialize rewrite (registry_ref stays as-is)"
+
+cd "$TRAVERSE_REPO"
+echo "→ registry index sync (network-capable prepare phase)…"
+cargo run -p traverse-cli -- registry sync --workspace "$WORKSPACE" --json
+
+cat <<'EOF'
+
+Next (Spec 520 library — no public CLI yet):
+  Rust:  traverse_embedder::HostRegistryCache + prepare_registry_dependency
+         then resolve_registry_dependency_offline / EmbedderConfig::with_registry_cache
+  Web:   prepareRegistryDependency / resolveRegistryDependencyOffline
+
+Cache bytes stay under TRAVERSE_MCP_CACHE_ROOT (host-owned).
+Then run: bash serve.sh   # fail-closed until Traverse Mode B host ships (#865)
+EOF
diff --git a/apps/llm-mcp-reference/mode-b/serve.sh b/apps/llm-mcp-reference/mode-b/serve.sh
new file mode 100755
index 0000000..257192c
--- /dev/null
+++ b/apps/llm-mcp-reference/mode-b/serve.sh
@@ -0,0 +1,31 @@
+#!/usr/bin/env bash
+# Mode B MCP launcher — fail closed until Traverse ships an embedded/cache host.
+# Do NOT silently fall back to Mode A expedition stdio (would mislabel Mode B).
+set -euo pipefail
+
+if [ -z "${TRAVERSE_REPO:-}" ]; then
+  echo "FAIL: set TRAVERSE_REPO" >&2
+  exit 1
+fi
+if [ -z "${TRAVERSE_MCP_CACHE_ROOT:-}" ]; then
+  echo "FAIL: set TRAVERSE_MCP_CACHE_ROOT (Spec 520 host-owned verified cache)" >&2
+  exit 1
+fi
+
+cd "$TRAVERSE_REPO"
+
+# Probe for a future Mode B entrypoint without inventing one.
+if cargo run -p traverse-mcp -- --help 2>/dev/null | grep -Eqi 'embedded|cache-root|mode-b'; then
+  echo "OK: Mode B-looking traverse-mcp help found — wire serve.sh to the shipped flags and re-run."
+  echo "HINT: intended shape: cargo run -p traverse-mcp -- embedded --cache-root \"\$TRAVERSE_MCP_CACHE_ROOT\""
+  exit 2
+fi
+
+cat <<EOF >&2
+FAIL: Mode B host not yet shipped in Traverse.
+  Spec 520 prepare/cache libraries exist (#860); MCP embedded/cache serve does not.
+  Track: https://github.com/traverse-framework/Traverse/issues/865
+  Use Mode A for a runnable path: cargo run -p traverse-mcp -- stdio
+  Cache root configured: $TRAVERSE_MCP_CACHE_ROOT
+EOF
+exit 2
diff --git a/docs/llm-reference-apps-plan.md b/docs/llm-reference-apps-plan.md
index fb6486e..3426c10 100644
--- a/docs/llm-reference-apps-plan.md
+++ b/docs/llm-reference-apps-plan.md
@@ -76,7 +76,7 @@ Shared:
 | Mode | When | Notes |
 |---|---|---|
 | **A. MCP stdio → local Traverse** (v1 default) | Developer laptop / agent IDE | `cargo run -p traverse-mcp -- stdio` with `TRAVERSE_REPO` |
-| **B. MCP → embedded host in a sidecar process** | Stronger product isolation | Future; align with Spec 520 prepare/cache |
+| **B. MCP → embedded host in a sidecar process** | Stronger product isolation | **Scaffolded** under `apps/llm-mcp-reference/mode-b/` (Spec 520 prepare/cache docs + fail-closed launcher). Live host still blocked on Traverse #865 |
 | **C. Remote MCP gateway** | Multi-tenant SaaS | Future; needs auth/tenancy — not this slice |
 
 v1 documents **Mode A** only. Do not revive HTTP `traverse-cli serve` as the production architecture for primary OS shells; MCP stdio is a **separate agent façade**, not a replacement for embedded Web/iOS/Android clients.
@@ -92,7 +92,7 @@ v1 documents **Mode A** only. Do not revive HTTP `traverse-cli serve` as the pro
 | `llm-mcp-chatgpt-adapter` | ChatGPT Actions/GPT mapping (or MCP when shipped) | Future / Ready when API stable |
 | `llm-mcp-grok-adapter` | Grok tool-calling mapping | Future / Ready when API stable |
 | `llm-mcp-traverse-starter-catalog` | Expose kit (`traverse-starter.*` / meeting-notes) on MCP stdio catalog | Blocked — Traverse [#865](https://github.com/traverse-framework/Traverse/issues/865) / registry [#99](https://github.com/traverse-framework/registry/issues/99) |
-| `llm-mcp-embedded-host` | Mode B embedded prepare/cache for MCP host | Blocked on Traverse Spec 520 implement |
+| `llm-mcp-embedded-host` | Mode B embedded prepare/cache for MCP host | Scaffold Done (this slice); live Mode B host waits on Traverse #865 |
 
 ## Success criteria (plan slice)
 
diff --git a/scripts/ci/llm_mcp_reference_smoke.sh b/scripts/ci/llm_mcp_reference_smoke.sh
index 8c5cd00..b9aaec6 100755
--- a/scripts/ci/llm_mcp_reference_smoke.sh
+++ b/scripts/ci/llm_mcp_reference_smoke.sh
@@ -33,6 +33,27 @@ need apps/llm-mcp-reference/clients/cursor/evidence/cursor-mcp-stdio-transcript.
 need apps/llm-mcp-reference/clients/cursor/evidence/cursor-mcp-execute-transcript.jsonl
 need apps/llm-mcp-reference/clients/chatgpt/README.md
 need apps/llm-mcp-reference/clients/grok/README.md
+# Mode B scaffold (Spec 520 prepare/cache — fail-closed until Traverse host ships)
+need apps/llm-mcp-reference/mode-b/README.md
+need apps/llm-mcp-reference/mode-b/mcp.json.example
+need apps/llm-mcp-reference/mode-b/prepare-cache.sh
+need apps/llm-mcp-reference/mode-b/serve.sh
+if ! rg -q 'TRAVERSE_MCP_CACHE_ROOT' "$ROOT/apps/llm-mcp-reference/mode-b/mcp.json.example"; then
+  echo "FAIL: mode-b mcp example must set TRAVERSE_MCP_CACHE_ROOT"
+  fail=1
+fi
+if ! rg -q 'HostRegistryCache|prepare_registry_dependency|Spec 520' "$ROOT/apps/llm-mcp-reference/mode-b/README.md"; then
+  echo "FAIL: mode-b README must document Spec 520 prepare/cache APIs"
+  fail=1
+fi
+if ! rg -qi 'not yet shipped|Mode B host not yet|fail' "$ROOT/apps/llm-mcp-reference/mode-b/serve.sh"; then
+  echo "FAIL: mode-b serve.sh must fail closed until Traverse Mode B host ships"
+  fail=1
+fi
+if rg -q 'APP_REFS_MATERIALIZE_REGISTRY_REFS|sync_bundle_materialize_registry_refs' "$ROOT/apps/llm-mcp-reference/mode-b"; then
+  echo "FAIL: mode-b must not depend on App-Refs materialize rewrite"
+  fail=1
+fi
 # Configs must mention traverse-mcp, not invent business fields
 if ! rg -q 'traverse-mcp' "$ROOT/apps/llm-mcp-reference/clients/claude-desktop/mcp.json.example"; then
   echo "FAIL: claude-desktop mcp example must reference traverse-mcp"