Institutional entry: a victory for crypto, or a fall?

Written by: Meltem Demirors

Translated by: Saoirse, Foresight News

Institutions are finally “entering the crypto industry” — but they’re not here to take over.

They are here to turn the crypto economy into a fee cash flow machine that expands their asset under management (AUM).

This is not judgment, nor criticism, just an observation of the facts.

Please note: My below views mainly target crypto assets as tokens/digital currencies, and may not apply to blockchain as financial infrastructure (which can exist without tokens, as most DeFi governance tokens demonstrate).

Since last year’s Digital Asset Summit, I’ve held this view. My opening speech was titled “Believe in Something.” Over the past year, nothing has changed my perspective—in fact, the picture has become clearer.

Recently, my friends — Evgeny from Wintermute and Dean from Markets Inc — each wrote two excellent articles discussing what’s called “institutional adoption” in crypto and its significance for market cycles. They inspired me to write a third piece, adding a new perspective on the ongoing upheaval in capital structures and the intensifying AUM race.

No time to read the full version? Here’s a one-sentence summary:

“Institutional adoption” is not a mission, but a strategy for extraction.

The only real question is: can the crypto industry build and support its own native institutions fast enough to keep economic value on-chain, rather than constantly flowing back to traditional finance (TradFi)?

Traditional finance has already been extracting most of the gains from the crypto economy.

Looking at the flow of funds, it’s clear who’s really profiting in crypto:

Not DeFi protocols, but the financial institutions that Satoshi originally aimed to replace in the Bitcoin whitepaper.

Just USDT and USDC generate about $10 billion in net interest annually, with profits going to Tether, Coinbase, and Circle. They are key players in the crypto ecosystem but ultimately answer only to shareholders.

Cantor Fitzgerald, under U.S. Secretary of Commerce Howard Lutnick, earns hundreds of millions annually by managing Tether’s government bonds and arranging trades for digital asset firms and investment products.

Former President Trump, his family, and partners have collectively profited billions through various crypto-related projects and token tools.

BlackRock’s IBIT Bitcoin ETF grew to about $100 billion in AUM within roughly 18 months, becoming the fastest-growing ETF in history and BlackRock’s most profitable product.

Institutions like Apollo Asset Management are quietly channeling crypto collateral and treasury funds into their own credit and multi-asset funds.

Every year, traditional financial institutions extract hundreds of billions—sometimes over a trillion—of assets and profits from the crypto economy, often earning more than the native protocols that create real value.

Those “industry innovators” who promote institutional entry at countless conferences, and the “frontline warriors” hyping meme coins on Twitter, are actually more similar than you think.

It’s time to stop blindly chasing hype and start thinking independently.

What are institutions really thinking?

Companies have only one goal: maximize profits.

Crypto can help them make money in two ways:

Cost reduction

Distributed ledgers, on-chain collateral, real-time settlement—these can significantly lower back-office and middle-office costs, and improve collateral liquidity and utilization.

Revenue generation

Packaging crypto into ETFs, tokenized funds, structured products, custody services, lending, cash management schemes… all can generate hefty, ongoing fee streams, and attract fervent support from the crypto community.

Over the past decade, institutions have only focused on the first.

When we founded DCG in 2015, I spent three years pitching the advantages of Bitcoin’s global ledger and final settlement to all financial institutions. Back then, they saw crypto as a risky new revenue source and thought dealing with Bitcoin and tokens was not worth the board’s effort.

By early 2018, I left DCG to join CoinShares, where our AUM grew from a few million to billions. At that time, a few daring independent managers who boldly invested in Bitcoin saw astonishing returns.

2024 marked a turning point: institutions began viewing crypto as a second pathway—another revenue machine.

The launch of BlackRock’s IBIT was the tidal wave that broke the dam.

IBIT became the most successful ETF in history, greatly boosting BlackRock’s profit statement.

Key facts:

Within one year of launch, IBIT’s size surged to $70 billion, at a pace about five times faster than the previous record-holder, the gold ETF GLD.

By the end of 2024, after IBIT options listed, it attracted over $30 billion more, surpassing all competitors and accounting for more than half of the total Bitcoin ETF market.

IBIT is BlackRock’s most profitable ETF: about $100 billion in AUM, generating hundreds of millions annually in fees, out-earning BlackRock’s nearly $1 trillion S&P 500 flagship fund.

IBIT has set a standard for the entire industry:

Pack Bitcoin and digital assets into traditional fund structures, list them, and turn them into stable, lucrative fee cows.

From DATs, tokenized government bonds, to on-chain money market funds, this is a copy-and-paste of the same strategy.

The AI supercycle of capital expenditure is swallowing global capital

Switching gears slightly, I want to discuss another key trend—one that prompted me to create Crucible immediately after IBIT launched in 2024.

The value chain of computing power and energy is reshaping the global capital landscape in real time.

Over the next decade, building an AI economy (chips, data centers, power, factories, etc.) will require hundreds of trillions of dollars in capital expenditure.

Where will the money come from?

All liquid assets not directly tied to AI—crypto, non-AI stocks, even credit assets—are being sold off and converted into what the market sees as “must-have AI assets.”

Meanwhile, many LPs (limited partners) have over-allocated in private markets, with slow exits and repayments, quietly reducing or delaying new private credit and private equity investments.

Financing cycles are becoming longer, more unstable, and harder to predict.

Competition for high-quality AUM channels is intensifying.

The result:

Asset management firms and private equity firms are frantically grabbing funds from insurance companies, retail and wealthy individuals, and sovereign wealth funds—while traditional pension funds and endowments are retreating.

The market is desperately hungry for cash.

Anything resembling a fund pool will be drained.

On-chain capital is the next battleground for AUM

In the race for AUM, crypto is no longer a strange toy—

It’s a potential AUM worth trillions of dollars, right in front of us.

IBIT proved that crypto can become a huge profit machine, a “honey pot” for institutional allocators.

The Trump administration also announced it would create a highly permissive environment for crypto innovation.

Today, on-chain asset management and treasury funds have reached hundreds of billions of dollars.

Stablecoins total about $300 billion in issuance, with USDT accounting for roughly 60%, USDC about 25%.

Total value locked (TVL) across multi-chain DeFi is around $90–100 billion.

Tokenized money market funds, gold, consumer credit products, and other real-world assets (RWA) add hundreds of billions more.

But the average on-chain yield is only 2–4%, far below the roughly 4.1% of traditional money market funds; even Lido’s nearly $18 billion stETH pool yields only about 2.3%.

In the eyes of asset-hungry investors, this isn’t “DeFi locked assets,” but cash flows that haven’t been fully monetized—ready to be packaged, staked, re-lent, and fee-optimized.

This is not moral judgment, just an instinct of institutions—like breathing, it’s natural.

Source: DefiLlama

Tokenization and compliant packaging turn formerly “taboo” crypto capital into fee-generating AUM that fits within traditional custody and risk management frameworks.

As companies, DAOs, and protocols amass huge crypto treasuries and seek safer external yields, asset managers can repackage these assets into token funds, money funds, structured products.

For companies under capital pressure and facing fierce competition for traffic:

“Plundering” crypto balance sheets is one of the cleanest paths to expanding fee-based AUM, without relying on saturated traditional channels.

A warning: if we don’t act now, we risk being absorbed

Just as Western economies have brought in groups that don’t share their culture and values—and are now paying social and economic prices—the crypto industry faces a similar survival crisis.

Crypto’s core opinion leaders and the industry itself are increasingly integrating traditional financial institutions that don’t share core values or contribute to native economic growth.

The entire industry will soon pay social and economic prices for this.

If left unchecked, crypto will ultimately become just another liquidity appendage for traditional financial institutions to expand their AUM.

The only way out:

Build and grow our own native institutions as quickly as possible.

Including on-chain asset management, risk control and underwriting, native financial products, and crypto-native allocation firms…

They can compete for treasury AUM, design products that serve long-term crypto interests, and keep economic value within the crypto ecosystem instead of flowing out to boost traditional giants’ profits.

If we don’t prioritize supporting native crypto institutions now, “institutional adoption” won’t be a victory—it will be a takeover.

Stand firm, or lose everything.