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2025 Crypto Market New Trends: The Rise of Avalanche and Morpho, Institutional Investment Shifts to Application-Driven
New Trends in the Crypto Market from an Institutional Perspective
In the rapidly 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, a well-known investment institution's quarterly updated Top 20 asset list serves as a "treasure map" of the crypto market from an institutional perspective, outlining a deep prediction of the "actual adoption trend" in the next phase of the market.
In the third quarter of 2025, this "treasure map" quietly adjusted: the rising stars Avalanche (AVAX) and Morpho (MORPHO) leaped onto the list, while the former giants Lido DAO (LDO) and the Layer 2 hopeful Optimism (OP) regrettably exited. Amidst this ebb and flow, what changes in the crypto market are hidden? Let us delve deeper and uncover the new narrative of crypto investment in 2025 behind this seemingly ordinary list change.
Signals of Structural Reform
Avalanche (AVAX): The 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 transaction volume of Avalanche's C-Chain surged 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 demand for GameFi and enterprise-level applications, with multiple games launched on its subnets. 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.
Institutions are optimistic about Avalanche due to its technological advancements, strategic ecosystem expansion, and the "multi-dimensional growth flywheel" formed by the integration with Web2. This suggests that the competition in Layer 1 is shifting towards a broader new track with real economic activities and the potential for integration between Web2 and Web3.
Morpho (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 yields and ensuring security through "Morpho Vaults" and isolated markets. The protocol design focuses on low transaction fees and has undergone multiple audits.
Morpho has achieved remarkable results: annual fee revenue has reached $100 million, and the total locked value (TVL) has doubled to over $4 billion, firmly securing its position as the second-largest DeFi lending platform. On the Base chain, it is the largest protocol in terms of 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 of 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 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 licensed markets. Institutions favor it because they are optimistic about its ability to enhance DeFi efficiency, reduce risks, and effectively connect with traditional finance.
Farewell to the Old Generals: Lido and Optimism
Lido DAO (LDO): The "liquid staking empire" faces headwinds.
Lido DAO was once the undisputed "empire" giant in the liquid staking space of Ethereum, managing about 33% of staked ETH. However, behind this success lies concerns about its centralized risks: the "permissioned" validator set, the control of core permissions by the LDO token, and the incident in May 2025 when a validator node's hot wallet was compromised, all of which raised alarms.
The Ethereum Shanghai upgrade in April 2023 allowed ETH withdrawals, weakening Lido's "moat" in terms of liquidity. Users have more options, turning to centralized platforms or emerging non-custodial competitors. Innovations in re-staking have also intensified the competition.
Lido's removal is a reflection of institutions re-evaluating "centralization risks." After the Shanghai upgrade, Lido's "centralization" characteristics have become more pronounced against the backdrop of intensified competition and clearer regulations. Institutions may believe that its risk-reward ratio is no longer attractive. Lido's 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 (OP): The grand vision of Layer 2, trapped in the "myth" of value capture.
As a leading Ethereum Layer 2 scaling solution, Optimism carries the responsibility of enhancing transaction capacity, reducing Gas fees, and improving user experience. Its "Superchain" vision, through OP Stack, has attracted several star projects. However, in terms of TVL and activity, it still unfortunately lags behind its main competitors.
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 Optimism Foundation, which is used 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 reflects a profound skepticism from institutions regarding the "value capture mechanism" of its OP token. A grand ecological vision cannot be directly converted into a clear value for the token. Institutional investors tend to prefer clear and direct token value capture paths. Low governance participation and the concentration of voting rights within the core team also add complexity and risk to institutional investment. In the face of fierce competition in the Layer 2 space, institutions may find it difficult for OP to provide "more attractive risk-adjusted returns" in the short term. Optimism's exit indicates a deepening assessment from institutions regarding the tokenomics of Layer 2: mere technological leadership is insufficient to support long-term value; tokens must have clear and sustainable value capture mechanisms and genuine decentralized governance.
The "Barometer" and "Structural Change" of Crypto Investment in 2025
Institutional Capital's "Tide": From Bitcoin to the Vast Deep Sea of Diversified Applications
In the first quarter of 2025, institutional interest in digital assets continues to rise. Surveys show that up to 86% of surveyed institutional investors have held or plan to allocate digital assets, with nearly 60% (59%) planning to invest more than 5% of their AUM in encryption. The successive approvals of Bitcoin and Ethereum ETFs are like the mainstream financial world opening its doors to encryption, and a certain 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, and participation in DeFi is 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 of $234 billion, as multiple protocols connect DeFi with traditional finance.
Institutional investment is transitioning from pure "Bitcoin faith" to a broad deep sea of "diversified allocation" and "application scenarios landing". The inclusion of Avalanche and Morpho in the rankings is a profound reflection of the trend of institutional investment moving "from points to areas" and "from speculation to application".
The "Evolution of DeFi": From "Barbaric Growth" to "Refined Survival"
In 2024, the Total Value Locked (TVL) in DeFi surged by 129%, and the trading volume of decentralized exchanges (DEXs) skyrocketed by 872%. DeFi is developing yield-bearing stablecoins to attract traditional finance. Trends such as embedded finance, automation, and artificial intelligence/machine learning (AI/ML) are reshaping the landscape. The success of Morpho is a microcosm of innovation in DeFi lending.
DeFi is experiencing 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 path of Morpho indicate that DeFi is meeting the complex trading and risk management needs of institutions. Institutions' preference for Morpho acknowledges the trend of DeFi's "self-evolution and external integration," optimistic about protocols that can enhance efficiency, reduce risks, 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 mainstream technologies. The Layer 2 market is highly competitive, with a leading project currently maintaining an edge in TVL and protocol count. Optimism, through its "superchain" vision and OP Stack, is committed to building an interoperable ecosystem, attracting multiple heavyweight projects.
The competition of Layer 2 has shifted to a comprehensive contest of "ecosystem building capabilities" and "token value capture models." The removal of Optimism precisely indicates that even with grand ecological visions, if the token value capture mechanism is not clear enough or if there are risks of centralization, it is still difficult to gain long-term favor from institutions. The evaluation of Layer 2 by institutions has gone beyond superficial indicators and has delved into mechanisms for long-term sustainable value creation and distribution.
Regulatory "filter": Compliance, the "ticket" for institutional funds to "enter"
In 2025, the regulatory environment for cryptocurrency in the United States gradually became clearer, like a "filter" for institutional funds entering the crypto market. Relevant departments issued new guidelines, clarifying that "protocol staking" is not a securities issuance. The U.S. Congress passed a bill that eliminated certain reporting obligations for DeFi platforms (non-traditional fiat currency inflows and outflows).
The clarification of regulations is a key "catalyst" for large-scale entry of institutions into the crypto market, while also serving as a precise "filter." It reduces legal and operational risks for institutions, encouraging more compliant organizations to enter the PoS ecosystem and DeFi. However, clear regulations also mean stricter compliance requirements. Lido's removal may partly be due to concerns over its "licensing system" and governance centralization. Asset management companies under strict regulation place a high emphasis on compliance in investment decisions. This indicates that from 2025 onwards, compliance has upgraded to become the "ticket" for attracting institutional capital.
Conclusion
The adjustment of the rankings clearly outlines the evolution path of institutional investment in the crypto market for 2025. It focuses on the project's technological innovation, 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 institutional-level and compliant development of DeFi lending. The exclusion of Lido DAO and Optimism serves as a warning about the centralized risks of liquid staking and the impact of value capture uncertainty in Layer 2 token economic models on institutional attractiveness.
The core investment logic for the crypto market in 2025 can be summarized as:
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 solve 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 crypto world, this list provides valuable strategies.