Crypto Market New Landscape: Institutional Capital Flow and Changes in Investment Logic

In the fast-changing world of encryption, the movements of institutional capital often indicate future trends. Recently, a well-known crypto asset management company updated its list of Top 20 assets, drawing a "treasure map" of the crypto market from an institutional perspective, reflecting a deep forecast of the adoption trends in the next stage of the market.

This quarter, the "treasure map" has quietly adjusted: the newcomer Avalanche and Morpho have leapt onto the list, while former giants Lido DAO and Layer 2 star Optimism have regrettably exited. What shifts in the crypto market are hidden behind this ebb and flow? Let us delve deeper to uncover the new narrative of crypto investment in 2025 behind this seemingly ordinary list change.

Rising Star: Signals of Structural Change

Avalanche: The strong pulse of the 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 demands 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.

Its selection reflects the market's recognition of the explosive potential of high-performance public chains in gaming and enterprise applications, indicating 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 Ethereum and Base chain, optimizing yield and ensuring security through "Morpho Vaults" and isolated markets. Its protocol design focuses on low transaction fees and has been audited multiple times.

Morpho has achieved remarkable results: its annual fee income reached $100 million, and the total locked value has doubled to over $4 billion, firmly securing its position as the second-largest player in DeFi lending. On the Base chain, it is the protocol with the largest TVL and active loan volume. Several top venture capital firms have invested over $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 determination to bring DeFi into traditional financial institutions.

The rise of Morpho validates its potential as a "DeFi institutionalization engine." It deeply understands the requirements of institutions for risk management and compliance, addressing the pain points of traditional finance entering DeFi through refined market design and support for permissioned markets. Its selection is based on the expectation that it can enhance DeFi efficiency, reduce risks, and effectively connect with traditional finance.

Departure of the Old Generals: Challenges and Reflections

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 this success lies concerns over its centralization risks: the "permissioned" validator set, the control of the LDO token over core permissions, and the incident in May 2025 where a validator's hot wallet was breached, all serve as warnings.

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

Lido's removal is a reflection of the reassessment of "centralization risk." After the Shanghai upgrade, Lido's "centralized" characteristics have become more prominent against the backdrop of intensified competition and clearer regulations. Its exit marks a higher standard of evaluation for institutional investors regarding 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.

Optimism, as a leading Layer 2 scaling solution for Ethereum, bears the important responsibility of enhancing transaction capabilities, reducing Gas fees, and improving user experience. Its "superchain" vision has attracted several star projects through the OP Stack. However, it still somewhat regretfully lags behind major 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 sequencers goes to the foundation to fund public goods, rather than being directly distributed to token holders. Although there are hopes for sharing in the future, this uncertainty affects the direct value capture of the token, leaving institutional investors skeptical.

In addition, the governance of Optimism has not been smooth sailing. Low voter participation and significant control of 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 raises profound questions about its OP token's "value capture mechanism." Grand ecological visions do not directly translate into clear token value. Institutional investors tend to prefer clear and direct paths for token value capture. Low governance participation and the concentration of voting power within the core team also increase the complexity and risk of institutional investment.

Its exit reflects the deepening evaluation by institutions of the Layer 2 token economics: simple technological leadership is insufficient to support long-term value; tokens must have a clear, sustainable value capture mechanism and true decentralized governance.

2025 Crypto Investment "Barometer" and "Structural Change"

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 as many as 86% of surveyed institutional investors have already held or plan to allocate digital assets, with nearly 60% planning to invest more than 5% of AUM in encryption. The successive approval of Bitcoin and Ethereum ETFs has opened the doors of the mainstream financial world to encryption, and a certain large asset management company's Bitcoin ETF has 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 DeFi participation expected to triple within two years. The tokenization of real-world assets and the adoption of stablecoins are accelerating, reaching a total market value of $234 billion, with multiple protocols connecting DeFi and traditional finance.

Institutional investment is moving from a simple "Bitcoin belief" to a broader deep dive into "diversified allocation" and "application scenario implementation." The inclusion of Avalanche and Morpho is a profound reflection of the trend of institutional investment "from points to surfaces" and "from speculation to applications."

The "Evolution" of DeFi: From "Barbaric 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, attracting traditional finance. Trends such as embedded finance, automation, and artificial intelligence/machine learning are reshaping the landscape. The success of Morpho is a reflection 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 derivatives DEXs and the institutional pathway of Morpho indicate that DeFi is meeting the complex trading and risk management needs of institutions.

The preference for Morpho is an acknowledgment of the DeFi trend of "self-evolution and external integration," and it is optimistic about protocols that can improve efficiency, reduce risks, and connect traditional finance.

Layer 2's "race": a comprehensive competition 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 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 is committed to building an interoperable ecosystem through its "super chain" vision and OP Stack, attracting several 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 precisely illustrates that even with grand ecological visions, if the token value capture mechanism is not clear enough or there are risks of centralization, it is difficult to gain long-term favor from institutions. The assessment of Layer 2 has gone beyond surface indicators, delving into long-term sustainable value creation and distribution mechanisms.

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

In 2025, the regulatory environment for cryptocurrencies in the United States gradually becomes clear, serving as a "filter" for institutional funds entering the crypto market. Regulatory agencies issue new guidelines, clarifying that "protocol staking" is not a securities offering. Congress passes a bill that abolishes certain reporting obligations for DeFi platforms.

The clarification of regulations is a key "catalyst" for institutional large-scale entry into the crypto market, while also serving as a precise "filter". It reduces the legal and operational risks for institutions and encourages more compliant entities to enter the PoS ecosystem and DeFi. However, clearer regulations also mean stricter compliance requirements. Lido being removed may be partly due to concerns over its "licensing system" and governance centralization.

This indicates that from 2025 onwards, compliance has upgraded to become the "ticket" for attracting institutional capital.

Conclusion: The Core Investment Logic of the Crypto Market in 2025

This list adjustment clearly outlines the evolution path of institutional investment in the crypto market by 2025. It focuses on the technological innovation of projects, real application scenarios, sustainable value capture models, and decentralized governance practices. The inclusion of new projects represents the market's recognition of the explosive potential of high-performance public chains in gaming/enterprise-level applications, as well as expectations for the development of DeFi lending towards institutional-level and compliance. The exit of old projects 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:

1. 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.

2. 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.

3. Clear value capture and decentralized governance: Tokens need to have a clear and sustainable value capture mechanism and effective decentralized governance.

4. 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 on project fundamentals, technological innovations, ecosystems, token economics, and compliance. Project builders need to construct 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.

In 2025, the crypto market is transitioning from "barbaric growth" to "meticulous cultivation". Only by understanding the beauty of structure can we grasp the future. Value discovery is often not because it's cheap, but because the structure is right.

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