A New Direction for Encryption Asset Management: Insights into Grayscale Investment Rankings Changes

In the ever-changing world of encryption, the movements of institutional capital often become key clues to insight into the future. As a pioneer in the field of encryption asset management, Grayscale Investments updates its Top 20 asset list every quarter, serving as a "treasure map" of the encryption market from an institutional perspective, outlining a deep forecast of the "factual adoption trend" for the next phase of the market.

In the third quarter of 2025, this "treasure map" has quietly adjusted: the rising star Avalanche (AVAX) and Morpho (MORPHO) have jumped onto the list, while the former giant Lido DAO (LDO) and the Layer 2 hopeful Optimism (OP) have unfortunately exited. Amidst the ebb and flow, what changes in trends are hidden in the crypto market? Let us delve deeper to uncover the new narrative of crypto investment in 2025 behind this seemingly ordinary list update.

Signals of Structural Change

Avalanche (AVAX): A 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 trading 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%, greatly stimulating on-chain vitality.

Avalanche precisely captures the needs 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.

Grayscale is optimistic about Avalanche due to its technological advancements, strategic ecosystem expansion, and the formation of a "multi-dimensional growth flywheel" through integration with Web2. This indicates that the competition among 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 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 success: annual fee income has reached $100 million, total locked value (TVL) has doubled to over $4 billion, firmly securing the second position in DeFi lending. 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 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 DeFi institutional adoption cases 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 institutional engine." It deeply understands the requirements for risk management and compliance from institutions, addressing the pain points of traditional finance entering DeFi through refined market design and support for licensed markets. Grayscale favors it because it sees its ability to enhance DeFi efficiency, reduce risk, and effectively connect with traditional finance.

Farewell to the Old Generals: Goodbye 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 around 33% of staked ETH. However, behind its success lies concerns over centralization risks: the "permissioned" validator set, control of core permissions by the LDO token, and the incident in May 2025 where the 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 now have more choices, turning to centralized platforms or emerging non-custodial competitors. The innovation of re-staking has also intensified the competition.

Lido's removal is a reflection of Grayscale's reassessment of "centralization risk." After the Shanghai upgrade, Lido's "centralization" characteristics have become more pronounced in the context of intensified competition and clearer regulations. Grayscale may believe that its risk-return profile is no longer attractive. Lido's exit marks a rise in the evaluation standards of 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 leader in Ethereum Layer 2 scaling solutions, Optimism carries the important task of enhancing transaction capacity, reducing Gas fees, and improving user experience. Its "Superchain" vision, through the OP Stack, has attracted several star projects. However, it still lags behind its 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 the sequencer 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 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 seems to be a profound questioning by Grayscale of its OP token's "value capture mechanism." A grand ecological vision cannot directly translate into a clear value for the token. Institutional investors tend to prefer clear and direct paths to token value capture. Low governance participation and the concentration of voting power within the core team also increase the complexity and risk for institutional investment. In the face of fierce competition in the Layer 2 space, Grayscale may believe that OP is unlikely to provide "more attractive risk-adjusted returns" in the short term. Optimism's exit reflects a deepening assessment 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 genuine decentralized governance.

The "Barometer" and "Structural Change" of Cryptocurrency 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 have held or plan to allocate digital assets, with nearly 60% (59%) planning to invest more than 5% of their AUM into encryption currencies. The successive approvals of Bitcoin and Ethereum ETFs are like opening the door of the mainstream financial world to encryption currencies, and a well-known asset management company's Bitcoin ETF even set the record for the fastest growth in history.

This tide has already surpassed the two "islands" of Bitcoin and Ethereum. Data shows that 73% of investors now hold alternative encryption currencies, with participation in DeFi 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 connecting DeFi with traditional finance.

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

The "Evolutionary Theory" of DeFi: From "Barbaric Growth" to "Refined Survival"

In 2024, the Total Value Locked (TVL) in DeFi surged by 129%, while the trading volume of decentralized exchanges (DEXs) skyrocketed by 872%. DeFi is developing yield-bearing stablecoins, attracting 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 undergoing an "evolution" from "wild growth" to "refined survival". Layer 2 and AI/ML applications aim to address pain points and enhance efficiency. Yield-generating stablecoins and embedded finance enrich product forms and seamlessly integrate with traditional finance. The explosive growth of derivative DEXs and the institutional path of Morpho indicate that DeFi is meeting the complex trading and risk management needs of institutions. Grayscale's favor towards Morpho recognizes 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 one platform currently maintaining a lead in both TVL and the number of protocols. Optimism is dedicated to building an interoperable ecosystem through its "superchain" vision and OP Stack, attracting multiple heavyweight projects.

The competition for 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 poses centralization risks, it is difficult to gain long-term favor from institutions. Grayscale's evaluation of Layer 2 has gone beyond surface indicators and delved into mechanisms for long-term sustainable value creation and distribution.

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

In 2025, the regulatory environment for cryptocurrencies in the United States becomes clearer, like a "filter" that paves the way for institutional funds to enter the crypto market. The U.S. Securities and Exchange Commission (SEC) issues new guidelines, clarifying that "protocol staking" is not considered a securities offering. The U.S. Congress passes a bill that abolishes the IRS broker reporting obligations for DeFi platforms (which do not use traditional fiat currency for deposits and withdrawals).

The clarification of regulations is a key "catalyst" for institutions to enter the encryption market on a large scale, and it also serves 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. Lido's removal may be partly due to concerns over its "licensing system" and governance centralization. Grayscale, as a strictly regulated asset management company, places a high emphasis on compliance in its investment decisions. This indicates that, from 2025 onwards, compliance has evolved into a "ticket" for attracting institutional capital.

Summary

The adjustment of the Grayscale Top 20 asset list clearly outlines the evolution path of institutional investment in the encryption 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 Avalanche and Morpho represents the market's recognition of the explosive potential of high-performance public chains in GameFi/corporate applications, as well as the expectation for DeFi lending to develop towards institutional-level compliance. The exclusion of Lido DAO and Optimism warns of the centralization 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 of the encryption market for 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-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 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 the encryption world.