The changes in the grayscale rankings reflect new trends in the crypto market

In the ever-changing world of encryption, the movements of institutional capital are often key clues to insight into the future. As a pioneer in the crypto asset management field, Grayscale Investments updates its Top 20 asset list every quarter, resembling a "treasure map" of the crypto market from an institutional perspective, outlining a deep prediction of the "factual adoption trend" for the next stage of the market.

In the third quarter of 2025, Grayscale's "treasure map" quietly adjusted: newcomers Avalanche and Morpho jumped onto the list, while the former giants Lido DAO and the Layer 2 hopeful Optimism regrettably left the stage. What shifts in the crypto market are hidden behind this ebb and flow? Let us delve into an analysis and uncover the new narrative of crypto investment in 2025 behind this seemingly ordinary list change.

Signals of Structural Reform

Avalanche: The Strong Pulse of 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 soared 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 accurately captures the needs of GameFi and enterprise-level applications, with multiple games launched 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.

I am optimistic about Avalanche because of its technological advancements, strategic ecosystem expansion, and the "multi-dimensional growth flywheel" formed by its integration with Web2. This indicates that Layer 1 competition is shifting towards a broader new track with real economic activity 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 the Ethereum and Base chains, optimizing yields and ensuring security through "Morpho Vaults" and isolated markets. Its protocol design focuses on low transaction fees and has undergone over 25 audits.

Morpho has achieved remarkable results: annual fee income reached $100 million, total locked value doubled to over $4 billion, firmly sitting in second place in DeFi lending. On the Base chain, it is the protocol with the largest TVL and active loan volume. Top venture capital investments exceed $69 million.

More significantly, a large trading platform has integrated Morpho into its main application, allowing users to borrow USDC by collateralizing with 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 requirements of institutions regarding risk management and compliance, addressing the pain points of traditional finance entering DeFi through refined market design and support for permissioned markets. The favor it receives is due to its ability to enhance DeFi efficiency, reduce risks, and effectively connect with traditional finance.

Farewell to the Old Generals: Lido and Optimism

Lido DAO: The "Empire" of Liquid Staking Faces Headwinds

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

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

Lido's removal reflects a reassessment of "centralization risk". After the Shanghai upgrade, Lido's "centralized" characteristics are more pronounced against the backdrop of intensified competition and clearer regulation. Its risk-reward ratio may no longer be attractive. Lido's exit marks a higher evaluation standard from institutional investors regarding liquid staking, emphasizing decentralization, governance transparency, and potential regulatory risks.

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

Optimism, as a leading Ethereum Layer 2 scaling solution, carries the important responsibility of enhancing transaction capabilities, reducing Gas fees, and improving user experience. Its "super chain" vision, which attracts several star projects through the OP Stack, is commendable. However, in terms of TVL and activity, it still unfortunately lags behind its competitors.

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

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

The removal of Optimism reflects a profound questioning of its OP token's "value capture mechanism." A grand ecological vision does not directly translate into a clear value for the token. Institutional investors tend to prefer clear and direct paths to token value capture. Low governance participation and the concentration of voting power within the core team also add complexity and risk to institutional investment. In the face of fierce competition in the Layer 2 track, Optimism may struggle to provide "more attractive risk-adjusted returns" in the short term. Optimism's exit reflects a deepening evaluation 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 genuine decentralized governance.

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

The "tide" of institutional funds: from Bitcoin to the vast deep sea of diversified applications

In the first quarter of 2025, institutional interest in digital assets continues to surge. 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 successive approvals of Bitcoin and Ethereum ETFs are like the mainstream financial world opening its doors to encryption, and a large asset management company's 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 and the adoption of stablecoins are accelerating, with a total market capitalization reaching $234 billion, and multiple protocols connecting DeFi with traditional finance.

Institutional investment is moving from a simple "Bitcoin faith" to a broad deep sea of "diversified allocation" and "application scenarios landing". The inclusion of Avalanche and Morpho in the list is a profound reflection of the trend of institutional investment "from point to area" and "from speculation to application".

The "Evolution" of DeFi: 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-bearing 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 DeFi lending innovation.

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 connecting with traditional finance. The explosive growth of derivatives DEXs and the institutional path of Morpho indicate that DeFi is meeting the complex trading and risk management needs of institutions. The preference for Morpho is an endorsement of the trend of DeFi's "self-evolution and external integration," with optimism for protocols that can enhance efficiency, reduce risks, and connect with traditional finance.

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

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

The competition in Layer 2 has shifted to a comprehensive contest of "ecosystem building capability" and "token value capture model." The removal of Optimism precisely indicates that even with grand ecological visions, if the token value capture mechanism is not clear enough or poses centralization risks, it is difficult to gain long-term favor from institutions. The assessment of Layer 2 has gone beyond surface indicators, delving into the long-term sustainable value creation and distribution mechanisms.

The "filter" of regulation: compliance, the "ticket" for institutional funds.

In 2025, the regulatory environment for cryptocurrencies in the United States gradually becomes clear, acting as a "filter" for institutional funds entering the crypto market. The U.S. Securities and Exchange Commission releases new guidelines, clarifying that "protocol staking" is not considered a securities issuance. The U.S. Congress passes a bill that abolishes certain reporting obligations for DeFi platforms.

Regulatory clarification is a key "catalyst" for institutions to enter the crypto market on a large scale, and it also acts as a precise "filter". It reduces legal and operational risks for institutions and encourages more compliant entities to enter the PoS ecosystem and DeFi. However, clear regulations also mean stricter compliance requirements. Lido was removed, possibly partly due to concerns about its "licensing system" and governance centralization. As a strictly regulated asset management company, investment decisions place great importance on compliance. This indicates that from 2025 and beyond, compliance has upgraded to be the "ticket" for attracting institutional capital.

Summary

The adjustment of the Top 20 asset list clearly outlines the evolution path of institutional investment in the crypto market by 2025. It focuses on the project's technological innovations, 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 expectations for the development of DeFi lending towards institutional-level and compliance. The exclusion of Lido DAO and Optimism warns of the centralized risks of liquid staking and the impact of value capture uncertainties 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 large-scale users and enterprise-level applications through technological innovation.
• Institutional-level DeFi infrastructure: The market favors DeFi protocols that can address the pain points of traditional finance and connect the 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, this list provides valuable strategic guidance. Investors should go beyond short-term speculation and conduct in-depth research into project fundamentals, technological innovations, ecosystems, token economics, and compliance. Project builders need to create healthy and sustainable economic models while achieving technological breakthroughs, strengthen decentralized governance, and actively integrate with the traditional financial world to seize institutional funding opportunities. 2025