Explain why an exchange like Poloniex *wouldn’t* have a huge surplus of funds on hand, and also have no problem with settling on the blockchain every once in a while. They would. So if 5000 hubs need to settle with other hubs every 3 days how many on-chain transactions is that?

Yes, this is an exaggerated, but probably more realistic topology than “random”.

But even a more realistic one, with 5 hops and hubs ranging from 100 to 100,000 members would still be perfectly acceptable.