New Trends in Institutional Investment in the Crypto Market: Analysis of Grayscale List Adjustments

In the fast-changing world of encryption, the movements of institutional capital are often key clues to insight into the future. Recently, Grayscale Investments updated its quarterly Top 20 crypto assets list, which serves as a "treasure map" of the crypto market from an institutional perspective, reflecting a deep prediction of the adoption trends for the next stage of the market.

In the third quarter of 2025, this "treasure map" has undergone new changes: Avalanche (AVAX) and Morpho (MORPHO) have made their debut on the list, while Lido DAO (LDO) and Optimism (OP) have exited the rankings. Behind these changes, what shifts in the crypto market are being hidden? Let us delve into the analysis and reveal the new narrative of crypto investment in 2025.

Rising Stars: Signals of Structural Change

Avalanche (AVAX): A strong pulse of on-chain vitality

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

In 2025, the transaction 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%. Avalanche accurately captured the demand for GameFi and enterprise-level applications, with multiple gaming projects launching on its subnet. More importantly, Avalanche 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, stemming from its technological advancements, strategic ecological expansion, and the formation of a "multidimensional growth flywheel" through Web2 integration. This indicates that the competition for Layer 1 is shifting to a broader new track with real economic activities and the potential for Web2/Web3 integration.

Morpho (MORPHO): A game changer in decentralized lending

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

Morpho's performance is impressive: 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 in DeFi lending. On the Base chain, it has become the protocol with the largest TVL and active loan volume. Several top venture capital firms have invested over $69 million, demonstrating institutional recognition of its potential.

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. Grayscale favors it precisely because it enhances DeFi efficiency, reduces risk, and can effectively connect with traditional finance.

Old General Exits: Challenges and Reevaluation

Lido DAO (LDO): The Headwind of the "Liquidity Staking Empire"

Lido DAO was once an undisputed giant in the Ethereum liquid staking space, managing about 33% of staked ETH. However, concerns about centralization risks behind its success have emerged: permissioned validator pools, control of core permissions by LDO tokens, and a security incident that occurred in May 2025 have raised alarms.

After the Ethereum Shanghai upgrade in April 2023, users had more options, with some turning to centralized platforms or emerging non-custodial competitors. Innovations such as re-staking have also intensified competition.

Lido has been removed, reflecting Grayscale's reassessment of "centralization risks". Against the backdrop of intensified competition and clearer regulations, Lido's centralized characteristics are more pronounced. This marks a heightened evaluation standard for institutional investors regarding liquid staking, placing greater emphasis on decentralization, governance transparency, and potential regulatory risks.

Optimism (OP): The Dilemma of Layer 2 Vision and Value Capture

As a leading Layer 2 scaling solution for Ethereum, Optimism carries the heavy responsibility of enhancing transaction capacity, reducing Gas fees, and improving user experience. Its "superchain" vision has attracted several star projects. However, in terms of TVL and activity, it still regrettably lags behind its competitors.

The OP token is the core of Optimism's decentralized governance structure. However, its revenue distribution model has uncertainties: currently, the income from sequencers belongs to the foundation, which is used to fund public goods rather than being directly distributed to token holders. This uncertainty affects the direct value capture of the token, causing institutional investors to have concerns.

In addition, the governance of Optimism also faces challenges. Low voter participation and 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 seems to be a profound questioning of its OP token "value capture mechanism." Grand ecological visions cannot be directly translated into clear token value. Institutional investors tend to prefer clear and direct paths to token value capture. This reflects a deeper evaluation by institutions of Layer 2 token economics: mere technological leadership is insufficient to support long-term value; tokens must have clear, sustainable value capture mechanisms and true decentralized governance.

New Trends in Crypto Investment in 2025

from Bitcoin to the vast ocean of diversified applications

In 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% planning to invest more than 5% of their AUM in cryptocurrency. The successive approval of Bitcoin and Ethereum ETFs is like the mainstream financial world opening its doors to cryptocurrency.

This tide has long surpassed 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 (RWA) and the adoption of stablecoins are accelerating, with a total market value reaching $234 billion, and multiple protocols are connecting DeFi with traditional finance.

Institutional investment is moving from a simple "Bitcoin belief" to a broad deep sea of "diversified allocation" and "application scenarios landing". The inclusion of new projects in the Grayscale list is a profound reflection of the trend of institutional investment "from point to surface" and "from speculation to application".

The refined evolution of DeFi

In 2024, the total locked value (TVL) of DeFi surged by 129%, and the trading volume of decentralized exchanges (DEXs) 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 (AI/ML) are reshaping the landscape.

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 derivative DEXs and the institutional path of emerging lending protocols indicate that DeFi is meeting the complex trading and risk management needs of institutions.

Comprehensive Competition of Layer 2

Layer 2 solutions, much 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 various parties competing in terms of TVL and the number of protocols.

The competition for Layer 2 has shifted to a comprehensive contest of "ecosystem building capabilities" and "token value capture models." Even with grand ecological visions, if the token value capture mechanism is not clear enough or there are risks of centralization, it will be difficult to gain long-term favor from institutions. The evaluation of Layer 2 by institutions has gone beyond surface indicators, delving into long-term sustainable value creation and distribution mechanisms.

Regulatory compliance: The ticket for institutional capital entry

In 2025, the regulatory environment for cryptocurrencies gradually became clearer, creating a "filter" for institutional funds to enter the market. U.S. regulators issued new guidelines clarifying the legal status of certain crypto activities. Congress passed a bill adjusting reporting obligations for DeFi platforms.

The clarification of regulations is a key catalyst for large-scale institutional 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, clear regulations also imply stricter compliance requirements. Certain projects being removed may be partly due to concerns over their centralized governance. This indicates that starting in 2025 and beyond, compliance has upgraded to become the "ticket" for attracting institutional capital.

Conclusion

The adjustment of the Grayscale 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 innovation, 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 GameFi/enterprise-level applications, as well as expectations for the institutional-level and compliant development of DeFi lending. The exit of existing projects 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 of the crypto market in 2025 can be summarized as:

1. Application-driven Layer 1/Layer 2: The future belongs to public chains and scalability solutions that can attract a large number of users and enterprise-level applications through technological innovation.
2. Institutional-grade DeFi infrastructure: The market favors DeFi protocols that can address traditional financial pain points and connect the on-chain and off-chain worlds.
3. Clear value capture and decentralized governance: Tokens must 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 crypto world, this list provides valuable strategic guidance. Investors should go beyond short-term speculation and delve into the fundamentals of projects, technological innovations, ecosystems, token economics, and compliance. Project builders need to develop healthy and sustainable economic models while achieving technological breakthroughs, strengthen decentralized governance, and actively integrate with the traditional financial world to seize opportunities from institutional funds. By 2025, the crypto market is transitioning from "barbaric growth" to "refined cultivation." Understanding the structural beauty behind this transformation is key to grasping the future.