The Capital Suck: Stablecoin Flywheel Economics (6 minute read)
Stablecoins generate 122x annual economic velocity compared to PayPal's 40x, creating a self-reinforcing flywheel that keeps capital onchain and is now pulling institutional assets into blockchain-based financial infrastructure.
What: An analysis from Blockchain Capital arguing that stablecoins create a flywheel effect where each $1B generates $122B in annual economic activity and $19M in protocol revenue, with supply growing 60x since 2020 to $300B while tokenized real-world assets reach $25B led by BlackRock's BUIDL fund.
Why it matters: The piece argues this velocity advantage (87x faster than traditional M2 money) means capital that moves onchain becomes too productive to pull back to legacy T+1/T+2 settlement systems, creating structural irreversibility in the shift to blockchain-based finance, with real-world evidence like traders routing to onchain perps during the Iran escalation instead of waiting for traditional venues.
Takeaway: Blockchain Capital is actively seeking founders building products around stablecoins and tokenized real-world assets.
Deep dive
- Stablecoins achieve 122x annual velocity (each dollar reused 122 times per year) versus PayPal's 40x and M2's 1.4x because they're continuously recycled through payments, DEXs, and lending without batch settlement delays
- Each $1B in stablecoin supply generates $122B in annual activity broken down as: $68B in payments/transfers, $34B in derivatives, $18B in DEXs, $1B in lending, and $400M in RWAs
- Protocol-level revenue is $19M per $1B of stablecoin supply, excluding the roughly $35M that issuers earn from float on reserves at 3.5% risk-free rates
- Total 2025 ecosystem earnings: stablecoin issuers made $13B+ from float alone (Tether over $10B, Circle $2.7B), while protocols generated $5B+ in stablecoin-attributed revenue
- Stablecoin supply grew 60x from $5B in early 2020 to roughly $300B today (now 1.4% of US M2 money supply), with $120B minted in 2025 alone and $33T in annual transaction volume
- Capital that moves onchain tends to stay because returning to legacy rails means forfeiting productivity gains from 24/7 composable lending, trading, and settlement infrastructure
- Tokenized real-world assets grew from $8B two years ago to $25B today, with BlackRock's BUIDL tokenized money market fund alone holding over $2B
- Real-world market displacement is visible: during the Iran escalation when traditional markets were closed, traders routed volume to onchain perpetual futures on platforms like Hyperliquid
- Authors predict the same flywheel that grew stablecoins will pull equities, credit, treasuries, and structured products onchain as institutional capital migrates to capture blockchain infrastructure advantages
- Methodology relies on adjusted volume figures ($33T from Artemis, though more conservative estimates suggest $10T) divided by average supply, with revenue attributed only to stablecoin-specific activities across protocols
Decoder
- Stablecoins: Cryptocurrencies pegged 1:1 to fiat currency like the dollar (examples: USDT, USDC) designed to maintain stable value
- Economic velocity: How many times a dollar circulates through the economy per year, calculated as total transaction volume divided by supply
- DEX: Decentralized exchange allowing peer-to-peer crypto trading without centralized intermediaries or custody
- RWAs (Real-World Assets): Traditional financial assets like government treasuries, corporate credit, or equities tokenized and issued on blockchains
- Protocol revenue: Fees captured by the protocol treasury itself, excluding portions distributed to liquidity providers, depositors, or stakers
- T+1/T+2 settlement: Traditional finance settlement times where trades take 1 or 2 business days to finalize after execution
- M2 money supply: Broad measure of money including physical cash, checking deposits, savings accounts, and other easily convertible near-money assets
- Onchain perps: Perpetual futures contracts (derivatives with no expiration date) traded directly on blockchain platforms rather than centralized exchanges
- Float income: Interest earnings that stablecoin issuers generate by investing the reserves backing their issued stablecoins in treasuries or money markets
- BUIDL: BlackRock's tokenized US Treasury money market fund (wordplay on "build" popular in crypto culture)
Original article
Onchain stablecoins generate 122x annual economic velocity per dollar deployed, compared to PayPal's ~40x turnover and US M2's 1.4x, with each $1B in stablecoin supply producing roughly $19M in annualized protocol revenue (excluding issuer float). Supply has grown 60x since 2020 to ~$300B, still just 1.4% of US M2, while tokenized RWAs have tripled to ~$25B over two years, led by BlackRock's BUIDL crossing $2B. The flywheel is now showing in market-hours displacement: during the Iran escalation, traders routed volume to onchain perps on platforms like Hyperliquid rather than waiting for traditional venues to reopen.