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

Author: Jonah Burian

Compiled by: Jiahua, ChainCatcher

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

The popularity of stablecoins and on-chain economic activities have now formed a mutually reinforcing closed loop, making this growth structurally difficult to reverse. The mechanisms behind this are rarely truly noticed:

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

Each cycle pulls in more funds. Capital migrated to the chain becomes productive, deeply embedded in lending markets, DEX, and derivatives. Pulling this capital back to traditional infrastructure means giving up all this utility. Thus, capital stays, and the flywheel continues to turn.

This closed loop has given birth to an entirely new financial economy, generating billions of dollars in revenue each year. @CremeDeLaCrypto and I believe that the same mechanism is beginning to pull all capital onto the chain.

Every turn of the flywheel creates value

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

Every $1 billion of stablecoins generates approximately $122 billion in economic activity per year, with a turnover rate of about 122 times.¹

For reference: dollars in PayPal turn over about 40 times a year.² The circulation speed of the U.S. M2 is only 1.4 times.

In other words, a dollar on the blockchain works about 3 times as efficiently as a dollar in PayPal and 87 times as efficiently as a dollar in M2. This is because stablecoins circulate repeatedly in payments, DEX, lending, etc., while traditional capital is stuck in T+1/T+2 batch settlement systems, which simply cannot achieve this.

The following is the composition of the $122 billion annual economic activity generated by $1 billion of stablecoins⁵:

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

Each $1 billion of stablecoins introduced generates about $19 million in protocol revenue annually.⁴ This revenue supports the next generation of products and attracts the next billion-scale stablecoins to enter the market.

It should be noted that the $19 million only covers the directly observable on-chain revenue at the protocol layer. It does not include the approximately $35 million earned annually by stablecoin issuers for every billion dollars (assuming a risk-free interest rate of 3.5%), nor does it include the substantial revenue generated by higher-level wallets, payment processors, fiat exchange channels, custody, and compliance.

Looking at the entire on-chain economy today, stablecoin issuers earned over $13 billion from floating reserves in 2025 (Tether over $10 billion, Circle $2.7 billion), and DEX, lending protocols, derivatives platforms, and blockchain-related stablecoin protocol revenue exceeded $5 billion.³

Capital will not leave

Once capital is on-chain, it becomes productive, allowing the closed loop to persist. It operates in lending markets, DEX, and derivatives. Returning to traditional tracks means giving up these utilities: T+1 settlement, constrained by bank operating hours, and isolated ledgers. Thus, capital tends to stay.

Since early 2020, the supply of stablecoins has grown about 60 times, from about $5 billion to about $300 billion, currently accounting for about 1.4% of U.S. M2.

In 2025 alone, newly minted stablecoins exceeded $120 billion, marking the largest single-year increase ever, with stablecoin trading volume reaching $33 trillion.

Each cycle is larger

Most of the above has been driven by retail capital and crypto-native use cases. The next few cycles of the flywheel may be driven by institutions, with scale significantly increasing.

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 fund are just early examples, but they will certainly not be the last. The scale of on-chain tokenized RWA has grown from about $8 billion less than two years ago to about $25 billion. BUIDL alone holds over $2 billion in assets.

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

Currently, RWA is the least allocated category in the entire tech stack and one of the smallest revenue lines. But it is one of the fastest-growing categories, connecting the on-chain economy with the multi-trillion-dollar institutional capital market.

The infrastructure built by the retail flywheel over the past five years (DEX, lending markets, payment channels) is now being used by institutions with the same set.

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

The great migration of capital

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

@CremeDeLaCrypto and I believe that capital will soon migrate en masse from traditional infrastructure to on-chain. We have already seen this process: issuers tokenize assets, institutional capital enters, and more issuers tokenize products to compete for capital, thereby pulling more capital onto the chain.

The flywheel that once absorbed stablecoins is now beginning to absorb stocks, credit, government bonds, and structured products. We are still in the early stages of this process. The flywheel that quietly pushed stablecoin supply up 60 times in six years will ultimately pull all assets onto the chain.

Methodology

¹ Stablecoin 122 times = $33 trillion adjusted trading volume in 2025 (Artemis Analytics, cited by Bloomberg and TRM Labs) / $270 billion average supply (DefiLlama, average of $230 billion in April 2025 and $310 billion in March 2026).

The trading volume covers the 2025 calendar year, and the average supply covers the past 365 days as of 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 is far higher than $33 trillion.

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

² PayPal 40 times = $1.79 trillion total payment transaction volume (TPV) for fiscal year 2025 (SEC filing) / approximately $45 billion customer balance (10-K form). This comparison is only for directional reference: stablecoin trading volume includes all on-chain transfers; PayPal TPV includes transactions funded by bank cards.

³ $19 million generated per $1 billion = $5.1 billion stablecoin-related protocol revenue (Token Terminal, past 365 days as of March 2026) / $270 billion average supply (DefiLlama).

We use protocol revenue rather than total fees (approximately $14 billion) because most fees flow to liquidity providers, depositors, and stakers, rather than to the protocol treasury.

Revenue is only attributed to stablecoin-related activities: DEX trades of stablecoin pairs (approximately 50% of DEX revenue), derivatives with stablecoins as collateral (approximately 87%), stablecoin lending (approximately 90%), and network fees generated from stablecoin transfers (Tron accounts for about 90%; other chains account for 15-25%). Excludes ETH/BTC exchanges, meme coin trading, and NFT minting.

⁴ $5.1 billion attributed revenue (note ³) / $270 billion average supply = $19 million generated per $1 billion. Excludes issuer floating reserves (approximately $35-42 million per $1 billion) and off-chain revenue (wallets, fiat exchange channels, custody).

⁵ Estimates based on Artemis stablecoin activity data, Artemis/Castle Island report "Stablecoin Payments Built from the Ground Up" (October 2025), Token Terminal, and DefiLlama data, converted based on $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) rather than outstanding balances (TVL/stock) to maintain consistency with other categories.