Unveiling New Trends in the Crypto Market: Insights Behind the Changes in Grayscale Rankings

In the fast-changing world of encryption, the movements of institutional capital often become key clues for insight into the future. As a pioneer in the field of crypto asset management, a well-known investment company's quarterly updated Top 20 asset list can be regarded as a "treasure map" of the crypto market from an institutional perspective, outlining a deep anticipation of the "factual adoption trends" for 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) jumped onto the list, while the former giants Lido DAO (LDO) and the Layer 2 hopeful Optimism (OP) regrettably exited. What changes in the crypto market are hidden behind this ebb and flow? Let us delve deeper to unveil the new narrative of crypto investment in 2025 behind this seemingly ordinary list change.

Signals of Structural Reform

Avalanche (AVAX): 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 transaction 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 GameFi and enterprise application needs, with multiple games launching 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 permeate the mainstream.

Institutions are optimistic about Avalanche due to its technological advancements, strategic ecosystem expansion, and the "multi-dimensional growth flywheel" formed by its integration with Web2. This indicates that the competition among Layer 1 solutions is shifting towards a broader new arena 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 that optimizes yields and ensures 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 USD, total locked value (TVL) doubled to over 4 billion USD, firmly sitting in the second position for 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 USD.

More significantly, a certain 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. Institutions favor it precisely because they see its ability to enhance DeFi efficiency, reduce risks, and effectively connect with traditional finance.

The Departure of the Old Guard: Farewell to Lido and Optimism

Lido DAO (LDO): The liquidity staking "Empire" 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 over centralization risks: the "permissioned" validator set, the control of core permissions by LDO tokens, and a certain event in May 2025 have raised alarms.

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

Lido's removal is a reflection of institutions' reassessment of "centralization risks". After the Shanghai upgrade, Lido's "centralization" characteristics have become more prominent against the backdrop of intensified competition and clearer regulations. Institutions may believe that its risk-reward ratio is no longer attractive. Lido's exit signifies that institutional investors have raised their evaluation standards for 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.

Optimism, as a leading Layer 2 scaling solution for Ethereum, carries the responsibility of enhancing transaction capacity, reducing Gas fees, and improving user experience. Its "Superchain" vision, through the OP Stack, has attracted multiple star projects. However, in terms of TVL and activity, it still somewhat regrettably lags behind its 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 the sorters goes 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, leaving institutional investors with doubts.

In addition, the governance of Optimism has not been smooth sailing. The low voting 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 questioning by institutions regarding its OP token's "value capture mechanism." Grand ecological visions do not directly translate into 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 rights within the core team also increase the complexity and risks for institutional investment. In the face of fierce competition in the Layer 2 space, institutions may believe that OP will struggle to provide "more attractive risk-adjusted returns" in the short term. Optimism's exit indicates a deepening of institutional assessments of Layer 2 token economics: mere technological superiority is insufficient to support long-term value; tokens must have clear, sustainable value capture mechanisms and true decentralized governance.

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

The "tide" of institutional capital: 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 responding institutional investors have held or plan to allocate digital assets, with nearly 60% (59%) planning to invest more than 5% of AUM in cryptocurrency. The successive approvals of Bitcoin and Ethereum ETFs are akin to the mainstream financial world opening its doors to cryptocurrency, with a well-known institution's Bitcoin ETF even setting the record for the fastest growth in history.

This tide has long surpassed the two "islands" of Bitcoin and Ethereum. Data shows that 73% of investors now hold alternative encryption currencies, with DeFi participation expected to triple in the next 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 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 rankings is a profound reflection of the trend of institutional investment "from point to area" and "from speculation to application."

DeFi's "Evolution": From "Wild Growth" to "Refined Survival"

In 2024, the Total Value Locked (TVL) in DeFi surged by 129%, and the trading volume of derivative decentralized exchanges (DEXs) skyrocketed by 872%. DeFi is developing yield-bearing stablecoins, attracting traditional finance. Trends like 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 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 path of Morpho indicate that DeFi is meeting the complex trading and risk management needs of institutions. The institutional preference for Morpho recognizes the trend of DeFi's "self-evolution and external integration", optimistic about protocols that can enhance efficiency, reduce risk, 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 lower user costs. Optimistic Rollups and ZK-Rollups are the mainstream technologies. The Layer 2 market is highly competitive, with a certain project currently maintaining a lead in TVL and the number of protocols. Optimism is committed to building an interoperable ecosystem through its "superchain" vision and OP Stack, attracting multiple 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 sufficiently clear or has centralization risks, it is difficult to gain long-term favor from institutions. The evaluation of Layer 2 by institutions has gone beyond superficial indicators, delving into long-term sustainable value creation and distribution mechanisms.

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

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

The clarification of regulations is a key "catalyst" for the large-scale entry of institutions 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 mean stricter compliance requirements. The removal of Lido may be partly due to concerns over its "permissioned system" and governance centralization. Asset management companies under strict regulation place a high emphasis on compliance in their investment decisions. This indicates that, from 2025 onwards, compliance has upgraded to become the "ticket" for attracting institutional capital.

Summary

The adjustment of the rankings clearly outlines the evolution path of institutional investment in the crypto market by 2025. It focuses on technological innovation, real application scenarios, sustainable value capture models, and decentralized governance practices of projects. 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 development of DeFi lending towards institutional-grade and compliance. The exit of Lido DAO and Optimism warns of the centralization risks associated with 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:

• 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 on project fundamentals.