Insights into the Changes in the Grayscale Rankings: New Investment Trends in the Crypto Market for 2025

In the ever-changing world of encryption, the movements of institutional capital are often key clues to insight into the future. As a pioneer in the field of crypto asset management, a well-known investment company's quarterly updated list of the Top 20 assets can be regarded as the "treasure map" of the crypto market from an institutional perspective, outlining a deep forecast of the "fact-based 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 Layer 2 hopeful Optimism (OP) regretfully exited. Between the entry and exit, what changes in the crypto market are hidden? Let’s delve deeper to uncover 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 activity.

Avalanche precisely captures the demands of GameFi and enterprise-level applications, with multiple games launching on 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.

Investment institutions are optimistic about Avalanche because of its technological advancements, strategic ecosystem expansion, and the "multi-dimensional growth flywheel" formed by its integration with Web2. This indicates that Layer 1 competition is shifting to 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 chains, optimizing yields and ensuring security through "Morpho Vaults" and isolated markets. Its protocol design focuses on low transaction fees and has undergone more than 25 audits.

Morpho has achieved remarkable results: annual fee revenue reached $100 million, total locked value (TVL) doubled to over $4 billion, firmly sitting in 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 major trading platform has integrated Morpho into its main application, allowing users to borrow USDC against 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 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. Investment institutions favor it because they see its ability to improve DeFi efficiency, reduce risk, and effectively connect with traditional finance.

The Departure of Old Generals: Farewell to Lido and Optimism

Lido DAO (LDO): The "liquid 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 this success lie concerns about its centralization risks: the "permissioned" validator set, the control of the LDO token over core permissions, and the incident in May 2025 where 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. The innovation of re-staking has also intensified competition.

Lido's removal is a reflection of investment firms' reassessment of "centralization risk." After the Shanghai upgrade, Lido's "centralized" characteristics are more pronounced in the context of intensified competition and clearer regulations. Investment firms may believe that its risk-reward ratio is no longer attractive. Lido's exit signifies a higher evaluation standard for institutional investors regarding liquid staking, placing greater emphasis on decentralization, governance transparency, and potential regulatory risks.

Optimism (OP): A grand vision for Layer 2, trapped in the "myth" of value capture.

As a leading Layer 2 scaling solution for Ethereum, Optimism carries the important mission of enhancing transaction capability, reducing Gas fees, and improving user experience. Its "Superchain" vision, driven by OP Stack, has attracted several star projects. However, in terms of TVL and activity, it still somewhat regrettably lags behind its competitors.

OP tokens are at the core of the Optimism Collective's decentralized governance structure. However, its revenue distribution model has a "myth": currently, sequencer revenues go 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 tokens, leaving institutional investors skeptical.

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 there is still room for improvement in the commitment to "decentralization" in practice.

The removal of Optimism reflects a profound skepticism from investment institutions regarding its OP token "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 power within the core team also increase the complexity and risks of institutional investment. In the face of fierce competition in the Layer 2 track, investment institutions may believe that OP will struggle 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; the token must have a clear, sustainable value capture mechanism and genuine 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 continued 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 in cryptocurrency. The successive approvals of Bitcoin and Ethereum ETFs are like the mainstream financial world opening its doors to cryptocurrency, and a well-known 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 already 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 reaching $234 billion, and multiple protocols connecting DeFi with traditional finance.

Institutional investment is transitioning from a simple "Bitcoin faith" to a broad deep sea of "diversified allocation" and "application scenario landing." The inclusion of Avalanche and Morpho in the rankings is a profound reflection of the trend of institutional investment "from points to areas" and "from speculation to application."

The "Evolution" of DeFi: From "Primitive 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-generating stablecoins to attract traditional finance. Trends like embedded finance, automation, and artificial intelligence/machine learning (AI/ML) are reshaping the landscape. Morpho's success is a microcosm of DeFi lending innovation.

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 and seamlessly connect 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. The investment community's 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 competition of ecology, technology, and value capture

Layer 2 solutions, like Ethereum's "highway", significantly enhance scalability and reduce user costs. Optimistic Rollups and ZK-Rollups are mainstream technologies. The Layer 2 market is highly competitive, with multiple projects vying for TVL and protocol numbers. Optimism is committed to building an interoperable ecosystem through the "Superchain" vision and OP Stack, attracting several heavyweight projects.

The competition of Layer 2 has shifted towards 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 poses centralization risks, it is difficult to gain long-term favor from institutions. Investment institutions' evaluation of Layer 2 has gone beyond superficial indicators and delved 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 became clear, acting as a "filter" for institutional funds entering the crypto market. Regulatory agencies issued new guidelines, clarifying that "protocol staking" is not a securities issuance. The U.S. Congress passed a bill to eliminate the reporting obligations for brokers regarding DeFi platforms (non-traditional fiat currency deposits and withdrawals).

The clarification of regulation is a key "catalyst" for institutions to enter the crypto market on a large scale, 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. Lido's removal may be partially 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 starting from 2025 and beyond, 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 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 expectations for DeFi lending to develop towards institutional-level and compliance. The exclusion of Lido DAO and Optimism warns of the centralized 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 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 solve traditional financial pain points and connect the on-chain and off-chain worlds.
• Clear value capture and decentralized governance: Tokens must have a clear and sustainable value capture mechanism and effective decentralized governance.
• Compliance First: Projects that actively embrace compliance and reduce legal risks will be favored by institutions.

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