Author | Meltem Demirors

Compiled by | Odaily Planet Daily (@OdailyChina)

Translator | Dingdang (@XiaMiPP)

Institutions have finally "entered the crypto space" — but they are not here to buy your position. They are here to turn the crypto economy into a fee-generating machine for their AUM (Assets Under Management). This is not a judgment or criticism, but simply an observation of facts.

The following thoughts mainly address crypto as an economy of digital currencies/tokens, rather than simply as blockchain as financial infrastructure (the latter mostly does not require native tokens, as the architecture of most current DeFi governance tokens proves).

This has been my view since last year's Digital Assets Summit, where the title of my opening speech was "Believe in Something". Everything that has occurred in the past twelve months has not changed my view, but has made the picture clearer.

Recently, my friends Evgeny from Wintermute and Dean from Markets Inc both wrote excellent articles discussing what so-called "institutional adoption of crypto" really means and its impact on market cycles. This inspired me to write a third piece, adding a new perspective to their foundation — the changing capital landscape and the exploding AUM war.

If you are short on time, here’s a summary:

“Institutional adoption” is not a mission; it’s an extraction strategy. The real question remains: Can crypto build and fund its institutions quickly enough to keep economic value on-chain, rather than allowing it to flow continuously to TradFi?

Traditional finance is extracting most of the value from the crypto economy

Just by taking a look at the flow of funds, one can understand who the real winners are in the current crypto world: it is not DeFi protocols, but rather those financial companies that Satoshi Nakamoto aimed to replace in the Bitcoin white paper.

• Just with the two major stablecoins USDT and USDC, they can generate about $10 billion in net interest margin each year, belonging respectively to Tether (a private company), Coinbase and Circle (public companies). These companies are certainly important players in the crypto economy, but their primary customers are their own shareholders.
• Cantor Fitzgerald — led by the current U.S. Secretary of Commerce Howard Lutnick — earns hundreds of millions each year by holding U.S. Treasuries for Tether and organizing trades around digital asset companies and investment products.
• Former U.S. President Trump, his family, and partners have earned billions through an ever-expanding array of crypto projects and token tools.
• BlackRock's Bitcoin ETF IBIT grew rapidly to about $100 billion AUM in roughly 18 months, making it the fastest-growing ETF in history and one of the company’s most profitable products (to be detailed later).
• Apollo Global Management and its peers have quietly funneled crypto collateral and corporate treasury balances into their credit and multi-asset funds.

Every year, traditional financial institutions extract billions of dollars in assets and profits from the crypto economy — and in many cases, the economic upside they gain even surpasses that of the protocols that originally created the value.

Those "institutional innovators" who cheer for "adoption" in countless meetings and those trench warriors who obsessively chat about Memecoins are, in fact, more similar than you think. We should stop worshipping and start thinking.

How do institutions think?

Corporates have only one core function: maximizing profits. Cryptocurrencies can achieve this goal in two ways:

• Cost side: Distributed ledgers, on-chain collateral, and instant settlements can significantly reduce backend and middle-office operational costs, enhancing the liquidity and utilization of collateral (see my previous notes on interchangeable liquidity).
• Revenue side: Packaging crypto into ETFs, tokenized funds, structured products, custody services, basis trading packages, lending, treasury management solutions... all generate substantial fee streams, along with brainless promotion by the crypto community on Twitter.

In the past decade, institutions primarily focused on the first approach.

When we founded DCG in 2015, I spent three years pitching the advantages of the Bitcoin global ledger and final settlement mechanism to almost all financial institutions. At that time, financial service companies did not view crypto as a new source of income. It was considered too risky; the potential profits from peddling altcoins were not enough to persuade the board to take on the reputational and compliance risks.

After leaving DCG, I joined CoinShares in early 2018. At that time, the company’s AUM gradually grew from tens of millions to billions of dollars. A few brave independent investment managers who embraced Bitcoin — such as Cathie Wood, Murray Stahl, and Ross Stevens — ultimately reaped substantial rewards for their courage.

The beginning of 2024 marked a watershed moment. Institutions began to view crypto as a tool for a second path: a new source of income.

Although there had been sporadic involvement from some institutions before, the launch of BlackRock’s IBIT Bitcoin ETF completely burst the dam. IBIT became the most successful ETF in history, significantly boosting BlackRock's financial reports. Here are a few key figures:

• IBIT reached $70 billion AUM in its first year, becoming the fastest ETF to achieve this scale, approximately five times faster than the previous record-holder SPDR Gold Shares (GLD).
• After IBIT options were listed at the end of 2024, it attracted over $30 billion in new inflows, while competitor fund flows basically stagnated, allowing it to capture over half of the market share for all Bitcoin ETF AUM.
• Currently, IBIT has about $100 billion in AUM, which can generate hundreds of millions in fee revenue for BlackRock annually, with profitability even surpassing the company's nearly trillion-dollar S&P 500 index fund.

The conclusion is clear: IBIT demonstrated the standard playbook to all large asset management companies and financial service institutions — acquire Bitcoin or other digital assets → package them into traditional fund structures → list them → and transform into a stable and substantial fee stream. Everything following that — DATs, tokenized treasuries, on-chain money market funds — runs the same playbook repeatedly.

AI capital expenditure supercycle: a black hole consuming capital

Looking at another major trend — this is also the reason why we established Crucible immediately after the launch of IBIT in 2024. The energy-computation value chain is reshaping the global capital stack in real-time.

Building the AI economy — chips, data centers, electricity, factories, etc. — will require trillions of dollars in capital expenditures over the next decade, and that money has to come from somewhere. All liquidity assets that are not directly tied to AI — crypto, non-AI stocks, even credit assets — are being liquidated to chase those designated as "must-have" AI targets.

At the same time, many LPs are over-allocated in private markets, exits and dividends are slowing down, and are quietly reducing or delaying new private credit and PE commitments. This has led to longer, more uneven, and less predictable fundraising cycles, intensifying the competition between asset management firms and private equity for quality AUM channels. The result is that everything that looks like a capital pool will be drained.

On-chain capital: the next frontier in the AUM battle

In this battle for AUM, crypto is no longer a quirky toy, but a potential management scale of trillions of dollars, clearly appearing in front of us.

IBIT has already proven that crypto is both a money printer and a "honey pot" attracting institutional allocators. The Trump administration has also made it clear that it will create a very accommodating environment for various crypto innovations.

Currently, the scale of on-chain asset management and treasuries has reached hundreds of billions of dollars:

• About $300 billion in stablecoin supply, with about 60% being USDT and 25% being USDC;
• The total value locked (TVL) in DeFi is about $90–100 billion, spread across chains like Ethereum, Solana, BSC, Hyperliquid, etc.;
• Real-world asset (RWA) products through tokenized money funds (like BlackRock’s BUIDL), tokenized gold (like Tether Gold, PAXG), and consumer credit products (like Figure’s tokenized HELOC), adding hundreds of billions in scale.

However, the average yields of these on-chain capitals are only 2–4%, while traditional money market funds can offer 4.1%, and even Lido’s $18 billion stETH pool is only about ~2.3%.

For a hungry asset accumulation machine, this is not "DeFi TVL," this is unmonetized cash flow — which can be packaged, staked, lent out, and charged fees. This is as natural as breathing for institutions.

Image from DefiLlama

Tokenized and regulated packaged products have transformed previously "untouchable" crypto capital into fee-generating AUM in compliance with existing custody and risk control frameworks. When companies, DAOs, and protocols accumulate large quantities of crypto treasuries and seek safer external yields, asset management firms can repackage these assets into tokenized funds, money market funds, and structured products. For companies facing fundraising pressure and saturated traditional channels, "hijacking" crypto balance sheets is one of the cleanest paths to growing fee-generating AUM.

A wake-up call

Just as Western economies have introduced groups that do not share their culture and values, now facing social and economic consequences, crypto is standing on the verge of a similar survival crisis. The crypto economy and its leading thinkers are inviting financial institutions that do not share our values, which do not come to co-build native economic growth; our industry will soon taste the same social and economic bitter fruit.

If allowed to develop unchecked, the crypto economy will become just another liquidity division of the traditional financial AUM machine. The only way out is to accelerate the establishment and growth of our own native institutions — on-chain asset management, risk management, underwriters, financial products, crypto-native allocators — to compete for treasury AUM, design products that truly serve the long-term interests of crypto, and keep more economic value within the crypto ecosystem instead of letting it flow into corporate profit sheets.

If we do not prioritize collaboration with crypto-native institutions now, "institutional adoption" will not be a victory, but rather a takeover.

Believe in something. Otherwise, we will be left with nothing.

Further Reading

The War Between Stablecoins and the Banking Industry May Not Exist

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