New Trends in the Crypto Market from an Institutional Perspective: Analysis of the Grayscale Top 20 List

In the rapidly changing world of encryption, the movements of institutional capital often provide insights into future trends. Grayscale Investments, as a pioneer in the field of crypto asset management, releases a quarterly updated list of the Top 20 assets, which can be regarded as the "treasure map" of the crypto market from an institutional perspective, reflecting a deep foresight into the adoption trends of the next stage of the market.

In the third quarter of 2025, this "treasure map" has quietly adjusted: the rising stars Avalanche (AVAX) and Morpho (MORPHO) leap onto the list, while Lido DAO (LDO) and Optimism (OP) unfortunately exit the stage. What changes in the winds of the crypto market are hidden between this coming and going? Let us delve deeper and unveil the new narrative of crypto investment in 2025.

Signals of Structural Change

Avalanche: Strong Pulse on Chain

Avalanche depicts a scalable and customizable blockchain future. Its "Avalanche consensus mechanism" achieves high throughput, low latency, and decentralization, while the three-chain architecture ensures sub-second transaction finality, laying the foundation for large-scale applications.

In 2025, the trading volume of Avalanche's C-Chain skyrocketed from 250,000 to nearly 1.2 million, thanks to the Etna upgrade which reduced average transaction fees by over 90%, greatly stimulating on-chain vitality.

Avalanche precisely captures the needs of GameFi and enterprise-level applications, with multiple games launching on its subnet. It also actively embraces the traditional world, collaborating with several Web2 giants to promote the tokenization of real-world assets, which is a key step for the Web3 economy to penetrate the mainstream.

Grayscale is optimistic about Avalanche due to its technological advancements, strategic ecological expansion, and the "multi-dimensional growth flywheel" formed by the integration with Web2. This indicates that the competition among Layer 1 solutions is shifting towards a broader new track with real economic activities and the potential for Web2/Web3 integration.

Morpho: "Transformers"-style decentralized lending

Morpho is charting a new institutional path for decentralized lending. It is a DeFi lending protocol based on Ethereum and the Base chain, optimizing yields and ensuring security through "Morpho Vaults" and isolated markets. Its protocol design focuses on low transaction fees and has undergone multiple audits.

Morpho has achieved remarkable results: annual fee income reached $100 million, total locked value doubled to over $4 billion, firmly securing the second position in DeFi lending. On the Base chain, it is the protocol with the highest TVL and active loan volume. Several top investment firms have invested over $69 million.

More significantly, a major trading platform has integrated Morpho into its main application, allowing users to borrow USDC against Bitcoin, which is one of the largest institutional-level adoption cases in DeFi to date. The release of Morpho V2 further demonstrates the commitment to bringing DeFi into traditional financial institutions.

The rise of Morpho validates its potential as a "DeFi institutionalization engine." It understands the institutional requirements for risk management and compliance well, addressing the pain points of traditional finance entering DeFi through refined market design and support for permissioned markets. Grayscale favors it precisely because of its ability to enhance DeFi efficiency, reduce risk, and effectively connect with traditional finance.

The Departure of Old Generals: Farewell to Lido and Optimism

Lido DAO: The liquidity staking "Empire" faces headwinds

Lido DAO was once the undisputed "empire" giant in the Ethereum liquid staking space, managing about 33% of staked ETH. However, behind this success lies concerns about its centralization risks: the "permissioned" validator set, the control of core permissions by the LDO token, and the incident in May 2025 where the hot wallet was compromised, all serve as a warning.

The Ethereum Shanghai upgrade in April 2023 allowed for ETH withdrawals, weakening Lido's "moat" in terms of liquidity. Users now have more options, turning to centralized platforms or emerging non-custodial competitors. The innovation of re-staking has also intensified competition.

Lido being removed is a reflection of Grayscale's reassessment of "centralization risk." After the Shanghai upgrade, Lido's "centralization" characteristics have become more pronounced against the backdrop of intensified competition and clearer regulations. Grayscale may believe that its risk-reward ratio is no longer attractive. Lido's exit marks a raised standard for institutional investors in evaluating liquid staking, placing greater emphasis on decentralization, governance transparency, and potential regulatory risks.

Optimism: The grand vision of Layer 2, trapped in the "myth" of value capture.

As a leading Ethereum Layer 2 scaling solution, Optimism carries the important responsibility of enhancing transaction capabilities, lowering Gas fees, and improving user experience. Its "Superchain" vision has attracted several star projects through the OP Stack. However, it still lags slightly behind its competitors in terms of TVL and activity.

The OP token is the core of the Optimism Collective's decentralized governance structure. However, its revenue distribution model has a "myth": currently, the income from the sequencers goes to the Optimism Foundation to fund public goods, rather than being directly distributed to OP token holders. Although there is hope for sharing in the future, this uncertainty affects the direct value capture of the token, leaving institutional investors with doubts.

In addition, the governance of Optimism has not been smooth sailing. The low voter participation and the significant control over the voting process by core contributors and early investors indicate that the commitment to "decentralization" still has room for improvement in practice.

The removal of Optimism more closely resembles Grayscale's profound questioning of the "value capture mechanism" of its OP token. A grand ecological vision cannot be directly translated into a clear value for the token. Institutional investors tend to favor clear and direct paths for token value capture. Low governance participation and the centralization of voting rights within the core team also complicate and increase the risks of institutional investment. In the face of fierce competition in the Layer 2 space, Grayscale may believe that OP will struggle to provide "more attractive risk-adjusted returns" in the short term. The exit of Optimism reflects a deepening assessment by institutions of Layer 2 token economics: mere technological leadership is insufficient to support long-term value; the token must possess a clear, sustainable value capture mechanism and true decentralized governance.

The "Barometer" and "Structural Change" of Crypto Investment in 2025

Institutional funds' "tide": from Bitcoin to the vast deep sea of diversified applications

In the first quarter of 2025, institutional interest in digital assets continues to soar. Surveys show that up to 86% of surveyed institutional investors have held or plan to allocate digital assets, with nearly 60% planning to invest more than 5% of AUM in encryption. The consecutive approvals of Bitcoin and Ethereum ETFs are like the mainstream financial world opening its doors to encryption, and a certain Bitcoin ETF even set the record for the fastest growth in history.

This tide has long surpassed the "islands" of Bitcoin and Ethereum. Data shows that 73% of investors now hold alternative encryption currencies, with participation in DeFi expected to triple within two years. The tokenization of real-world assets (RWA) and the adoption of stablecoins are accelerating, with a total market value reaching $234 billion, and multiple protocols connecting DeFi with traditional finance.

Institutional investment is moving from a mere "Bitcoin faith" towards a broad sea of "diversified allocation" and "application scenario implementation". The inclusion of Avalanche and Morpho in the Grayscale list is a profound reflection of the trend of institutional investment "from points to surfaces" and "from speculation to application".

DeFi's "evolution": from "wild growth" to "refined survival"

In 2024, the total locked value in DeFi surged by 129%, and the trading volume of decentralized exchanges for derivatives skyrocketed by 872%. DeFi is developing yield-generating stablecoins to attract traditional finance. Trends such as embedded finance, automation, and artificial intelligence/machine learning are reshaping the landscape. The success of Morpho is a microcosm of innovation in DeFi lending.

DeFi is undergoing an "evolution" from "wild growth" to "refined survival". Layer 2 and AI/ML applications aim to address pain points and enhance efficiency. Yield-bearing stablecoins and embedded finance enrich product forms, seamlessly integrating with traditional finance. The explosive growth of derivative DEXs and Morpho's institutional path indicate that DeFi is meeting the complex trading and risk management needs of institutions. Grayscale's preference for Morpho is a recognition of the trend of DeFi's "self-evolution and external integration", optimistic about protocols that can enhance efficiency, reduce risk, and connect with traditional finance.

Layer 2's "race": a comprehensive contest of ecology, technology, and value capture

Layer 2 solutions, like Ethereum's "highway", significantly enhance its scalability and reduce user costs. Optimistic Rollups and ZK-Rollups are the mainstream technologies. The Layer 2 market is highly competitive, with one platform currently maintaining a lead in TVL and the number of protocols. Optimism is dedicated to building an interoperable ecosystem through its "superchain" vision and OP Stack, attracting multiple heavyweight projects.

The competition in Layer 2 has shifted to a comprehensive contest of "ecosystem building capabilities" and "token value capture models." The removal of Optimism highlights that even with grand ecological visions, if the token value capture mechanism is not clear enough or has centralization risks, it is difficult to gain long-term favor from institutions. Grayscale's evaluation of Layer 2 has gone beyond superficial indicators, delving into mechanisms for long-term sustainable value creation and distribution.

Regulatory "filter": compliance, institutional funds' "ticket to entry"

In 2025, the cryptocurrency regulatory environment in the United States gradually becomes clearer, acting as a "filter" for institutional funds entering the crypto market. Relevant regulatory agencies issue new guidelines, clarifying that "protocol staking" is not considered a securities issuance. The US Congress passes a bill that eliminates certain reporting obligations for DeFi platforms.

Regulatory clarity is the key "catalyst" for large-scale institutional entry into the crypto market, and it also serves as a precise "filter". It reduces the legal and operational risks for institutions, encouraging more compliant entities to enter the PoS ecosystem and DeFi. However, clear regulations also mean stricter compliance requirements. The removal of Lido may be partly due to concerns over its "licensing system" and governance centralization. Grayscale, as a strictly regulated asset management company, places a high emphasis on compliance in its investment decisions. This indicates that, from 2025 onwards, compliance has become the "ticket" to attract institutional capital.

Summary

The adjustment of the Grayscale Top 20 asset list clearly outlines the evolution path of institutional investment in the crypto market for 2025. It focuses on the technical innovation of projects, real application scenarios, sustainable value capture models, and decentralized governance practices. The inclusion of Avalanche and Morpho represents the market's recognition of the explosive potential of high-performance public chains in GameFi/enterprise-level applications, as well as the expectation for the development of DeFi lending towards institutional-level and compliance. The exit of Lido DAO and Optimism warns of the centralized risks of liquid staking and the impact of value capture uncertainty in Layer 2 token economic models on institutional attractiveness.

Summary of the core investment logic for the crypto market in 2025:

• Application-driven Layer 1/Layer 2: The future belongs to public chains and scaling solutions that can attract a large number of users and enterprise-level applications through technological innovation.
• Institutional-grade DeFi infrastructure: The market favors DeFi protocols that can address traditional financial pain points and connect on-chain and off-chain worlds.
• Clear value capture and decentralized governance: Tokens must have a clear, sustainable value capture mechanism and effective decentralized governance.
• Compliance first: Projects that actively embrace compliance and reduce legal risks will be favored by institutions.

For participants in the encryption world, the Grayscale rankings provide valuable strategic guidance. Investors should go beyond short-term speculation and conduct in-depth research on project fundamentals, technological innovations, ecosystems, token economics, and compliance. Project builders need to develop healthy and sustainable economic models while achieving technological breakthroughs, strengthening decentralized governance, and actively engaging with the traditional financial world.