Senior crypto investor: Blockchain is showing a siphoning effect on capital

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Author: Jonah Burian

Translation: Jiahui, ChainCatcher

Software has devoured the world. Blockchain is pulling all capital in.

The popularity of stablecoins and on-chain economic activities now form a reinforcing closed loop, making this growth structurally hard to reverse. Few people really notice the mechanism behind it:

Stablecoins go on-chain → Developers create use cases to absorb funds → These use cases attract more stablecoins → Repeat

Each cycle pulls in more capital. Capital migrated to the chain becomes productive, deeply embedded in lending markets, DEXs, and derivatives. Pulling this capital back into traditional infrastructure means abandoning all these utilities. So the capital stays, and the flywheel keeps spinning.

This closed loop has already birthed a new financial economy, generating billions of dollars in revenue annually. @CremeDeLaCrypto and I believe the same mechanism is now starting to pull all capital onto the chain.

Every turn of the flywheel creates value

When $1 billion in new stablecoins enters the on-chain economy, it disperses across the financial system, being reused over 100 times per year, generating tens of millions of dollars in annual revenue.

Every $1 billion in stablecoins produces approximately $122 billion in economic activity annually, with a turnover rate of about 122 times.¹

For comparison: USD in PayPal circulates about 40 times per year.² The velocity of M2 in the US is only 1.4 times.

In other words, one dollar on the blockchain is about three times as efficient as one dollar in PayPal, and 87 times as efficient as one dollar in M2. This is because stablecoins circulate repeatedly in payments, DEXs, lending, and other activities, whereas traditional capital is stuck in T+1/T+2 batch settlement systems, making it impossible to achieve this level of efficiency.

Below is the composition of the $122 billion annual economic activity generated by $1 billion in stablecoins⁵:

Payments and transfers: about $68 billion
Derivatives: about $34 billion
DEX: about $18 billion
Lending: about $1 billion
RWA: about $400 million

For every $1 billion in stablecoins introduced, approximately $19 million in protocol revenue is generated annually.⁴ These revenues support next-generation products and attract the next batch of stablecoins worth tens of billions.

It’s worth noting that the $19 million only covers the directly observable on-chain revenue at the protocol level. It does not include the roughly $35 million per $1 billion earned annually by stablecoin issuers (assuming a risk-free rate of 3.5%), nor the substantial income generated from wallets, payment processors, fiat onramps, custody, and compliance layers.

Looking at the entire on-chain economy today, by 2025, stablecoin issuers will have earned over $13 billion from floating funds (Tether over $10 billion, Circle $2.7 billion), and protocol revenues from DEXs, lending protocols, derivatives platforms, and stablecoin-related protocols will exceed $5 billion.³

Capital won’t leave

Once on-chain, capital becomes productive, allowing the closed loop to continue. It is invested in lending markets, DEXs, and derivatives. Returning to traditional pathways means abandoning these utilities: T+1 settlement, limited by bank hours, and isolated ledgers. So capital tends to stay.

Since early 2020, stablecoin supply has grown about 60 times, from roughly $5 billion to about $300 billion, now accounting for approximately 1.4% of US M2.

In 2025 alone, new stablecoins issued will surpass $120 billion, setting the largest single-year increase ever, with stablecoin trading volume reaching $33 trillion.

Every cycle gets bigger

Most of the above is driven by retail capital and native crypto use cases. The next few turns of the flywheel may be driven by institutions, with scale leaping significantly.

Institutional capital is beginning to shift onto the chain, which in turn incentivizes more asset issuers to tokenize products to compete for this capital.

@BlackRock’s BUIDL and Apollo’s on-chain credit funds are just early examples, but definitely not the last. The scale of on-chain tokenized RWA has grown from less than $8 billion two years ago to about $25 billion now. Only BUIDL alone holds over $2 billion in assets.

The emergence of institutional capital on-chain will attract more tokenized government bonds, private credit tools, and structured products, because issuers always follow the money. The more products there are, the more reasons institutions have to shift capital.

Currently, RWA is the smallest category in the entire tech stack and one of the smallest revenue streams. But it is also one of the fastest-growing categories, connecting the on-chain economy with the trillions of dollars in institutional markets.

The infrastructure built by retail flywheels over the past five years (DEXs, lending markets, payment channels) is now being used by institutions in the same way.

Derivatives are a prime example. Whenever traditional markets close and risks accumulate over the weekend (such as escalating tensions in Iran or commodity shocks), trading volume increasingly shifts to on-chain perpetual contracts on platforms like Hyperliquid. Trading volume in crude oil, silver, and gold surges during traditional exchange closures.

Capital migration

Stablecoins are the first real-world assets to go on-chain. Dollars move from bank accounts to the blockchain, and the flywheel mechanism ensures they stay and compound.

@CremeDeLaCrypto and I believe that next, capital will migrate massively from traditional infrastructure to the chain. We’ve already seen this process: issuers tokenize assets, institutional capital enters, more issuers tokenize products to compete for capital, pulling more assets onto the chain.

The flywheel that once absorbed stablecoins is now beginning to absorb stocks, credit, government bonds, and structured products. We are still early in this process. The flywheel that quietly increased stablecoin supply 60-fold over six years will eventually bring all assets onto the chain.

Methodology

¹ Stablecoin 122x = $33 trillion adjusted trading volume in 2025 (Artemis Analytics, cited by Bloomberg and TRM Labs) / $270 billion average supply (DefiLlama, average of $2.3 trillion in April 2025 and $3.1 trillion in March 2026).

The trading volume covers the calendar year 2025, and the average supply covers the past 365 days up to March 2026. Even so, this may underestimate the turnover rate: in January 2026 alone, there were about $10 trillion in stablecoin transfers, meaning the actual trading volume over the past 365 days was much higher than $33 trillion.

A more conservative filtering method (Visa/Allium Labs) estimates the adjusted transfer volume for 2025 at about $10 trillion. Even at this level, the stablecoin annual turnover rate is about 40 times, comparable to PayPal, and 28 times faster than M2 (1.4 times).

² PayPal 40x = $17.9 trillion total payment volume (TPV) in FY2025 (SEC filings) / about $45 billion customer balances (10-K). This comparison is directional: stablecoin trading volume includes all on-chain transfers; PayPal TPV includes transactions funded by bank cards.

³ Every $330k generates $19 million in protocol revenue = $5.1 billion stablecoin protocol revenue (Token Terminal, past 365 days up to March 2026) / $270 billion average supply (DefiLlama).

We use protocol revenue rather than total fees (about $14 billion) because most fees go to liquidity providers, depositors, and stakers, not the protocol treasury.

Revenue only pertains to activities related to stablecoins: DEX trading pairs involving stablecoins (about 50% of DEX revenue), derivatives collateralized with stablecoins (about 87%), stablecoin lending (about 90%), and network fees from stablecoin transfers (Tron accounts for about 90%; other chains 15-25%). Excludes ETH/BTC swaps, meme coin trading, and NFT minting.

⁴ $5.1 billion attributable revenue (see note ³) / $270 billion average supply = $19 million per $1 billion. Excludes issuer floating funds (about $35-42 million per $1 billion) and off-chain income (wallets, fiat onramps, custody).

⁵ The estimate is based on Artemis stablecoin activity data, Artemis/Castle Island’s report “Building Stablecoin Payments from the Ground Up” (October 2025), Token Terminal, and DefiLlama data, scaled to $33 trillion annual trading volume.

“Payments and transfers” = all non-DeFi fund flows (P2P, B2B, CEX fund flows, wallet transfers, not just merchant payments). The lending category uses disbursed funds (flow), not outstanding balances (TVL/stock), to stay consistent with other categories.