New Trends in Institutional Investment in the Crypto Market: Analyzing the Changes in Grayscale's Q3 Rankings

In the rapidly changing world of encryption, the movements of institutional capital often serve as key clues for insight into the future. Grayscale Investments, as a pioneer in the field of crypto asset management, updates its Top 20 asset list each quarter, which can be regarded as a "treasure map" of the crypto market from an institutional perspective, outlining a deep prediction of the adoption trends in the next phase of the market.

In the third quarter of 2025, Grayscale adjusted this "treasure map": the rising stars Avalanche and Morpho made it to the list, while the former giants Lido DAO and the Layer 2 hopeful Optimism unfortunately exited. What trends in the crypto market are hidden behind this ebb and flow? Let's delve deeper and unveil the new narrative of crypto investment in 2025.

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 surged from 250,000 to nearly 1.2 million, thanks to the Etna upgrade which reduced average transaction fees by over 90%, greatly invigorating on-chain activity.

Avalanche precisely captures the demand for GameFi and enterprise-level applications, with multiple games launching on its subnets. It also actively embraces the traditional world, partnering 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 through the integration with Web2. This indicates that the competition for Layer 1 is shifting towards a broader new track with real economic activities and the potential for integration between Web2 and Web3.

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 revenue reached $100 million, and the total locked value doubled to over $4 billion, firmly sitting in second place in DeFi lending. On the Base chain, it is the largest protocol in terms of TVL and active loan volume. Top venture capital has 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 commitment to bringing 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 licensed markets.

The Departure of the Old Guard: Farewell to 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 sector, 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 when a validator node's hot wallet was breached, all of which have sounded alarm bells.

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

Lido's removal is a reflection of the reassessment of "centralization risk." After the Shanghai upgrade, Lido's "centralization" characteristics have become more prominent against the backdrop of intensified competition and clearer regulation. This marks an increased evaluation standard from 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.

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 has attracted several star projects through the OP Stack. However, in terms of TVL and activity, it still regrettably lags behind its competitors.

OP tokens are the core of the Optimism Collective's decentralized governance structure. However, its revenue distribution model has a "myth": currently, the sequencer's income is allocated 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, causing institutional investors to have concerns.

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 indicate that the commitment to "decentralization" still has room for improvement in practice.

The removal of Optimism seems more like a profound questioning of its OP token "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 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.

The "Barometer" and "Structural Change" 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 soar. Surveys show that as many as 86% of surveyed institutional investors currently hold or plan to allocate digital assets, with nearly 60% planning to invest more than 5% of their AUM in encryption currency. The successive approvals of Bitcoin and Ethereum ETFs are akin to the mainstream financial world opening its doors to encryption currency.

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 in two years. The tokenization of real-world assets 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 simple "Bitcoin belief" to a vast deep sea of "diversified allocation" and "application scenario landing." The inclusion of Avalanche and Morpho in the Grayscale ranking is a profound reflection of the trend of institutional investment "from point to area" and "from speculation to application."

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.

DeFi is undergoing an "evolution" from "wild growth" to "refined survival." Layer 2 and AI/ML applications aim to address pain points and improve efficiency. Yield-bearing stablecoins and embedded finance enrich product forms, seamlessly connecting with traditional finance. The explosive growth of derivatives DEXs and Morpho's institutional path indicate that DeFi is meeting the complex trading and risk management needs of institutions.

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

Layer 2 solutions, akin to 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 multiple projects competing in TVL and the number of protocols.

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 mechanisms are not clear enough or if there are risks of centralization, it is still difficult to gain the long-term favor of institutions.

Regulatory "filter": compliance, institutional funds' "entrance ticket"

In 2025, the regulatory environment for cryptocurrencies in the United States gradually became clearer, acting as a "filter" for institutional funds entering the crypto market. Regulatory agencies issued new guidelines, clarifying that "protocol staking" is not a securities offering. Congress passed a bill that eliminated certain 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 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. This indicates that from 2025 onwards, compliance has upgraded to a "ticket" for attracting institutional capital.

Summary

The adjustment of the Grayscale Top 20 asset list clearly outlines the evolutionary path of institutional investment in the crypto market for 2025. It focuses on technological 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 DeFi lending to develop towards institutional-level and compliance-oriented frameworks. The exclusion of Lido DAO and Optimism serves as a warning regarding the centralized risks of liquid staking, and the impact of value capture uncertainty in Layer 2 token economic models on institutional appeal.

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 applications through technological innovation.
• Institutional-grade 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 need to 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, 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 a healthy and sustainable economic model while achieving technological breakthroughs, strengthen decentralized governance, and actively integrate with the traditional financial world to seize institutional funding opportunities. By 2025, the crypto market is transitioning from "barbaric growth" to "refined cultivation"; understanding the structural beauty behind this will enable one to grasp the future.