The New Trend in Encryption Asset Management: Analysis of Grayscale Investment Q3 Rankings

In the rapidly changing world of encryption, the movements of institutional capital often become key clues for insights into the future. As a pioneer in the field of encryption asset management, Grayscale Investments' quarterly updated Top 20 asset list is undoubtedly a "treasure map" of the encryption market from an institutional perspective, outlining a deep prediction of the "fact-based adoption trend" for the next stage of the market.

In the third quarter of 2025, Grayscale's "treasure map" quietly adjusted: the rising stars Avalanche (AVAX) and Morpho (MORPHO) jumped onto the list, while former giants Lido DAO (LDO) and Layer 2 hopeful Optimism (OP) unfortunately exited. What changes in trends within the encryption market are hidden behind this ebb and flow? Let us delve deeper to uncover the new narrative of cryptocurrency investment in 2025 behind this seemingly ordinary list change.

Signals of Structural Change

Avalanche (AVAX): The strong pulse of on-chain "heartbeat"

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 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 in the penetration of the Web3 economy into the mainstream.

Grayscale is optimistic about Avalanche because of its technological advancements, strategic ecological expansion, and the formation of a "multi-dimensional growth flywheel" through integration with Web2. This indicates that the competition in Layer 1 is shifting towards a broader new track with real economic activity 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, 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 revenue from fees reached $100 million, and total value locked (TVL) doubled to over $4 billion, firmly securing its position as the second-largest 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 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 institutional engine." It is well aware of the requirements institutions have 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.

The Departure of Old Generals: Farewell to Lido and Optimism

Lido DAO (LDO): The "Empire" of liquid staking 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 about centralization risks: the "permissioned" validator pool, the control of core permissions by the LDO token, and an event in May 2025 have all sounded alarm bells.

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. Re-staking innovations have also intensified 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 prominent against the backdrop of intensified competition and clearer regulations. Grayscale may believe that its risk-reward ratio is no longer attractive. Lido's exit marks a higher standard of evaluation for 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.

Optimism, as a leader in Ethereum Layer 2 scaling solutions, bears 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 lags slightly 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 revenue 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 is not 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 reflects a profound questioning by Grayscale regarding its OP token's "value capture mechanism." Grand ecological visions do not directly translate into clear value for the tokens. 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 risk of institutional investment. In the face of intense competition in the Layer 2 space, Grayscale may believe that OP is unlikely to provide "more attractive risk-adjusted returns" in the short term. The exit of Optimism indicates 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 institutional investors surveyed have held or plan to allocate digital assets, and nearly 60% (59%) plan to invest more than 5% of their AUM in encryption. The successive approval of Bitcoin and Ethereum ETFs is akin to the mainstream financial world opening its doors to encryption, and a well-known investment firm's Bitcoin ETF has even set a record for the fastest growth in history.

This wave has long surpassed the "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 faith" to a broad deep sea of "diversified allocation" and "application scenarios landing." The inclusion of Avalanche and Morpho in the Grayscale list is a profound reflection of the trend of institutional investment "from point to area" and "from speculation to application."

The "Evolution Theory" of DeFi: From "Barbaric 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 such as embedded finance, automation, and artificial intelligence/machine learning (AI/ML) are reshaping the landscape. The success of Morpho 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 enhance efficiency. Yield-bearing stablecoins and embedded finance enrich product forms, seamlessly connecting 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. Grayscale's favor towards Morpho is an acknowledgment of the trend of DeFi's "self-evolution and external integration", showing optimism for protocols that can enhance efficiency, reduce risks, and connect with traditional finance.

Layer 2's "racing": A comprehensive competition 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 the mainstream technologies. The Layer 2 market is highly competitive, and a certain platform still maintains a lead in TVL and the number of protocols. Optimism is committed to building an interoperable ecosystem through its "super chain" vision and OP Stack, attracting several 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 there are risks of centralization, it is difficult to gain the long-term favor of institutions. Grayscale's assessment 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 cryptocurrency regulatory environment in the United States gradually becomes clear, acting as a "filter" for institutional funds entering the crypto market. Regulatory agencies issue new guidelines clarifying that "protocol staking" is not considered a securities offering. The U.S. Congress passes a bill that eliminates certain reporting obligations for DeFi platforms.

The clarification of regulations is a key "catalyst" for large-scale institutional entry into the encryption market and 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 being removed may be partly due to concerns over its "permission-based" model and governance centralization. Grayscale, as a strictly regulated asset management company, places a high emphasis on compliance in its investment decisions. This indicates that, by 2025 and beyond, compliance has been upgraded to a "ticket" for attracting institutional capital.

Conclusion

The adjustment of the Grayscale Top 20 asset list clearly outlines the evolutionary 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/enterprise-level applications, as well as the expectation for DeFi lending to develop towards institutional-level and compliance. The exit of Lido DAO and Optimism 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.

Summary of the core investment logic for the encryption 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-grade 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 need to 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.

For participants in the encryption world, the Grayscale leaderboard provides valuable strategic guidance. Investors should go beyond the short