From Adoption to Annexation
The End State of Institutional Crypto
Institutions are finally “coming to crypto”—but they’re not here to buy your tokens. They’re here to turn the crypto economy into a fee stream for their AUM accumulation machines. This is not a judgment or criticism, but an observation of facts. Note that my thoughts below pertain primarily to crypto as digital currency / tokens, not necessarily to blockchains as financial infrastructure which do not require a token as evidenced by the vast majority of DeFi governance tokens in their current construct.
This has been my view since last year’s Digital Assets Summit, where I opened with a talk titled ‘Believe in Something’ and nothing in the last twelve months has changed my mind, it’s only made the picture clearer.
Recently my friends Evgeny from Wintermute and Dean from Markets Inc wrote two great articles on the so-called “institutional adoption” of crypto and what it means for market cycles. They inspired me to write a third article that builds on their thoughts and adds a new lens - the changing capital landscape and the emerging AUM wars.
If you’re short on time
“Institutional adoption” isn’t a mission; it’s an extraction strategy. The only real question is whether crypto builds and funds its own institutions fast enough to keep economic value onchain instead of bleeding it out to TradFi.
TradFi is already extracting the bulk of crypto economics
If you follow the money, it’s obvious who is winning in crypto: not DeFi protocols, but the financial firms that Satoshi’s Bitcoin whitepaper sought to displace.
USDT and USDC alone generate around $10B a year in net interest margin that accrues to Tether (private co), Coinbase and Circle (pubcos). These firms are active contributors to the crypto economy but serve their own shareholders.
Cantor Fitzgerald - US Secretary of Commerce Howard Lutnick’s firm - clips hundreds of millions annually by holding treasuries for Tether and syndicating deals around digital asset firms and investment products.
President Trump, his family, and their partners have collectively made billions across a growing set of crypto ventures and token vehicles.
BlackRock’s IBIT sprinted to roughly $100B in AUM in ~18 months, becoming both the fastest ETF to that mark and the firm’s most profitable product (more on this later)
Apollo and peers are quietly routing crypto collateral and treasury balances into their own credit and multi‑asset funds.
Every year, traditional financial institutions are extracting billions in assets and profits from the crypto economy—often with more economic upside than the protocols that actually created the value in the first place.
The “institutional innovators” cheerleading adoption at endless conferences and the trench warriors tweeting about memecoins have more in common than you might think. We need to stop simping and start thinking.
How institutions actually think
Firms have one function. They optimize for profit. Crypto can do that in two ways:
On the cost reduction side, distributed ledgers, onchain collateral, and instant settlement promise cheaper back and mid office operations and better collateral mobility and utilization (see my previous notes on fungible liquidity).
On the revenue generation side, crypto can be wrapped into ETFs, tokenized funds, structured products, custody services, packaged basis trades, lending, and treasury management solutions that all throw off fat fee streams plus get endless Twitter simping from the crypto community.
For the last decade, institutions were focused on the first lever only. When we started DCG in 2015, I spent three years pitching every financial firm on the benefits of Bitcoin’s global ledger and settlement with finality as superior market microstructure. Financial services firms were not thinking about crypto as a way to generate new revenue streams. It was perceived as too “high risk” to engage with bitcoin and the broader token economy and no potential returns from slinging shitcoins would justify the reward to corporate boards.
After leaving DCG, I joined CoinShares in early 2018 as we started to grow AUM from tens of millions to billions. The small number of independent investment managers that did engage with Bitcoin - Cathie Wood at ARK, Murray Stahl at Horizon Kinetics, Ross Stephens at Stone Ridge, just to name some - were rewarded for their bravery by exceptional returns.
The start of 2024 marked the beginning of institutions viewing crypto as a medium for the second - new revenues. While we had seen emergent institutional engagement, the launch of BlackRock’s IBIT Bitcoin ETF was the canonical tide that broke the dam. IBIT became the most successful ETF of all time, materially augmenting Blackrock’s balance sheet. A few interesting facts:
IBIT reached $70B in assets within its first year, making it the fastest ETF in history to that AUM milestone, beating the previous record held by SPDR Gold Shares (GLD) by roughly a 5x speed factor.
After options on IBIT listed in late 2024, IBIT attracted over $30B of additional inflows while competitors’ flows went largely flat, consolidating its share to well over half of all Bitcoin ETF AUM.
IBIT is the most profitable ETF for Blackrock, with ~$100B of AUM generating on the order of a few hundred million dollars a year in fee revenue. IBIT generates more revenue than BlackRock’s flagship S&P 500 tracker which has nearly 1 trillion in AUM.
The moral of the story - IBIT showed every major asset manager and financial services firm the playbook: take Bitcoin and other digital assets, wrap it in a traditional fund structure, list it, and turn it into a nice chunky fee stream. Everything that has followed—from DATs to tokenized treasuries to onchain MMFs—is that playbook being run over and over again.
The AI Capex Investment Supercycle is a Black Hole for Capital
Let’s switch gears briefly to talk about another emerging trend - this one is much closer to home for us at Crucible and is a big reason why I started the firm in 2024, right after the launch of IBIT. The energy to compute value chain is re-wiring the global capital stack in real time.
Building the AI economy—chips, data centers, power, factories, and more—requires tens of trillions in capex over the coming decade, and that money has to come from somewhere. Liquid assets that aren’t directly tied to AI—crypto, non‑AI equities, even credit assets—are being sold to fund the rotation into the perceived “must‑own” AI names.
At the same time, many LPs are overallocated to private markets, facing slower exits and distributions, and are quietly cutting or delaying new private credit and PE commitments. That leaves fundraising cycles longer, lumpier, and less predictable, as competition for attractive AUM channels intensifies. The result is a mad scramble among asset managers and PE shops to backfill capital from insurance balance sheets, retail and mass‐affluent investors via evergreen or semi‑liquid vehicles, and sovereign wealth platforms—as traditional pensions and endowments pull back.
The market is starving for cash; everything that looks like a capital pool will be drained.
Onchain capital is the next AUM frontier
In the hunt for AUM, crypto is no longer a weird toy—it’s a few trillion dollars of potential AUM sitting in plain sight.
IBIT proved that crypto can be a massive money maker and a honey pot for institutional allocators. The Trump administration has indicated that it will do everything in its power to continue to create an exceptionally permissive environment for any and all crypto innovation. Today, onchain asset management and treasuries represent several hundred billion dollars of capital.
There are roughly $300B of stablecoins outstanding, with ~60% in Tether’s USDT and ~25% in USDC.
DeFi TVL sits around $90–100B across Ethereum, Solana, BSC, Hyperliquid, and other chains.
Real‑world‑asset products add tens of billions more via tokenized money market funds like BlackRock’s BUIDL, tokenized gold such as Tether Gold and PAXG, and consumer credit products like Figure’s tokenized HELOCs.
Yet the average on‑chain yield on this capital is only 2–4% in a world where money market funds pay roughly 4.1%, and even Lido’s roughly $18 billion stETH pool earns just ~2.3%.
From the perspective of a hungry asset accumulator, this isn’t “DeFi TVL”—it’s under monetized cash flow that can be wrapped, hypothicated, re-lent, and charged a fee. This isn’t a judgment - this instinct is as natural to institutional investors as breathing is to you and me.
Tokenization and regulated wrappers have turned what used to be “off‑limits” crypto capital into fee‑bearing AUM that fits neatly into existing custody and risk frameworks. As corporates, DAOs, and protocols accumulate large crypto treasuries and seek safer exogenous yields, asset managers can repackage those assets into tokenized funds, MMFs, and structured products. For a firm facing funding pressure and new competition for flow, “raiding” crypto balance sheets is one of the cleanest ways to grow a fee paying AUM base without relying on saturated traditional channels.
A Warning Shot Across the Bow
Just as Western economies have imported people who don’t share their culture or values and are now suffering the social and economic consequences, crypto is on the cusp of a similar existential crisis. The crypto economy and its leading thinkers are importing financial institutions that don’t share our values and aren’t building native economic growth, and our industry will soon suffer the social and economic consequences. If we let this play out, the crypto economy becomes just another liquidity sleeve for TradFi’s AUM machine.
The only way out is to build and scale our own native institutions— onchain asset managers, risk managers and underwriters, financial products, crypto native allocators—who can compete for treasury AUM and design products that serve crypto’s long term interests while keeping more of the economics inside the crypto ecosystem instead of bleeding it out to pad the corporate bottom line. If we don’t prioritize collaboration with crypto native institutions now, ‘institutional adoption’ won’t be a victory, it will be an annexation.
Believe in something. Otherwise we stand for nothing.
Going forward when people ask me what I do for a living I'm just going to share this domino meme with no further commentary.