Changes in the Landscape of Encryption Assets: Analyzing Grayscale's Q3 List Adjustments

In the rapidly 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 encryption asset management, Grayscale Investments updates its Top 20 asset list every quarter, resembling a "treasure map" of the encryption market from an institutional perspective, outlining a deep pre-judgment of the "factual adoption trend" for the next stage of the market.

In the third quarter of 2025, this "treasure map" quietly adjusted: the rising star Avalanche (AVAX) and Morpho (MORPHO) made their debut on the list, while the former giant Lido DAO (LDO) and the Layer 2 hope Optimism (OP) regrettably exited. What changes in the direction of the encryption market are hidden behind this ebb and flow? Let's delve deeper to uncover the new narrative of crypto 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 trading 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 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.

Grayscale is optimistic about Avalanche due to its technological advancements, strategic ecosystem expansion, and the "multi-dimensional growth flywheel" formed through integration with Web2. This indicates that the competition among Layer 1 solutions is shifting towards a broader new track with real economic activities and the potential for Web2/Web3 integration.

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 multiple audits.

Morpho has achieved remarkable results: annual fee revenue reached $100 million, and the total locked value (TVL) 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. Top venture capital investments exceed $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 institutional requirements 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 because it believes in its ability to enhance DeFi efficiency, reduce risks, and 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 field of Ethereum liquid staking, managing about 33% of staked ETH. However, behind this success is the concern over its centralization risks: the "permissioned" validator set, the control of core permissions by LDO tokens, and the incident in May 2025 when Chorus One's hot wallet was breached, all of which have sounded the alarm.

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 innovation of re-staking has also intensified competition.

Lido's removal is a reflection of Grayscale's reassessment of "centralization risks." After the Shanghai upgrade, Lido's "centralization" characteristics become more prominent against the backdrop of intensified competition and clearer regulations (the SEC views "protocol staking" as a non-security activity). Grayscale may believe that its risk-return profile is no longer attractive. Lido's exit signifies that institutional investors are raising 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 Ethereum Layer 2 scaling solution, bears the responsibility of enhancing transaction capabilities, 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 at 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 and raises concerns among institutional investors.

Moreover, the governance of Optimism is not without its challenges. 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." Grand ecological visions cannot be directly translated into clear value for 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 fierce competition in the Layer 2 track, Grayscale 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; tokens must possess a clear, sustainable value capture mechanism and true decentralized governance.

Behind the Grayscale Rankings: 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 already held or plan to allocate digital assets, with nearly 60% (59%) planning to invest more than 5% of AUM in encryption. The successive approvals of Bitcoin and Ethereum ETFs are like the mainstream financial world opening its doors to encryption, with one fund's Bitcoin ETF even setting a record for the fastest growth in history.

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 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 mere "Bitcoin belief" 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".

DeFi's "Evolution Theory": From "Primitive Growth" to "Refined Survival"

In 2024, the total locked value (TVL) of DeFi surged by 129%, while the trading volume of decentralized exchanges (DEXs) skyrocketed by 872%. DeFi is developing yield-bearing 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 reflection 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 derivative DEXs and the institutional path of Morpho indicate that DeFi is meeting the complex trading and risk management needs of institutions. Grayscale's preference for Morpho recognizes the trend of DeFi's "self-evolution and external integration", highlighting optimism for protocols that can enhance efficiency, reduce risks, and connect with traditional finance.

Layer 2's "race": a comprehensive competition of ecosystem, 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, and a certain platform currently remains a leader in TVL and the number of protocols. Optimism, through its "superchain" vision and OP Stack, is committed to building an interoperable ecosystem, 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 sufficiently clear or if there are centralization risks, it is difficult to gain long-term favor from institutions. Grayscale's assessment of Layer 2 has surpassed surface indicators and delved into long-term sustainable value creation and distribution mechanisms.

Regulatory "filter": 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. Regulatory agencies issue new guidelines clarifying that "protocol staking" is not considered a securities offering. The U.S. Congress passes a bill abolishing the broker reporting obligations for DeFi platforms (non-traditional fiat currency deposits and withdrawals).

The clarification of regulations is a key "catalyst" for large-scale institutional entry into the encryption market, while also serving as a precise "filter". It reduces the legal and operational risks for institutions and encourages more compliant institutions to enter the PoS ecosystem and DeFi. However, clear regulations also mean stricter compliance requirements. Lido was removed, possibly partly due to concerns over its "license system" and governance centralization. Grayscale, as a heavily 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.

Conclusion

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 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 the development of DeFi lending 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 attraction.

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-level DeFi infrastructure: The market favors DeFi protocols that can address traditional financial pain points and connect the on-chain and off-chain worlds.
• Clear value capture and decentralized governance: Tokens should 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.