In the fast-evolving crypto landscape, institutional capital movements often provide critical clues about future directions. Grayscale Investments, a pioneer in crypto asset management, releases a quarterly Top 20 Assets list that serves as a treasure map highlighting key trends and potential adoption pathways from an institutional perspective.
The Q3 2025 update brought notable changes: newcomers Avalanche (AVAX) and Morpho (MORPHO) joined the ranking, while established names like Lido DAO (LDO) and Layer 2 contender Optimism (OP) were removed. These shifts signal meaningful trends in investor focus and market evolution. This analysis decodes what these changes mean for crypto investing in 2025.
Key Additions: New Entrants and Their Strengths
Avalanche (AVAX): Powering Scalable Blockchain Solutions
Avalanche offers a highly scalable, customizable blockchain ecosystem. Its unique “Avalanche consensus” mechanism enables high throughput, low latency, and robust decentralization. The three-chain architecture—X-Chain, C-Chain, and P-Chain—ensures sub-second transaction finality, laying the foundation for mass adoption.
In 2025, Avalanche’s C-Chain transaction volume surged from 250,000 to nearly 1.2 million. This growth was fueled by the Etna upgrade, which reduced average transaction fees by over 90%, significantly boosting on-chain activity.
The platform has also made strides in GameFi and enterprise applications. Projects like MapleStory Universe have launched on its subnetworks. Partnerships with Amazon Web Services (AWS) and Alibaba Cloud demonstrate Avalanche’s push toward real-world asset tokenization—a critical step in merging Web3 with mainstream economies.
Grayscale’s inclusion of Avalanche reflects confidence in its multi-dimensional growth strategy, combining technical refinement, strategic ecosystem expansion, and Web2 integration. This signals a broader shift in Layer 1 competition toward platforms with real economic activity and fusion potential.
Morpho (MORPHO): Reinventing Decentralized Lending
Morpho is charting a new path for decentralized lending with its institutional-grade approach. Operating on Ethereum and Base chains, it uses “Morpho Vaults” and isolated markets to optimize yields and enhance security. The protocol emphasizes low transaction fees and has undergone over 25 audits.
Morpho’s performance is impressive: it generates $100 million in annualized fee revenue, and its Total Value Locked (TVL) has doubled to over $4 billion, making it the second-largest DeFi lending protocol. On Base, it leads in both TVL and active loan volume. Top venture firms, including a16z Crypto and Pantera Capital, have invested over $69 million.
A landmark development was Coinbase’s integration of Morpho into its main app, allowing users to borrow USDC against Bitcoin—one of the largest institutional DeFi adoption cases to date. The release of Morpho V2 further underscores its ambition to bridge DeFi with traditional finance.
Morpho’s rise validates its role as an institutional engine for DeFi. It addresses key barriers to traditional finance adoption—such as risk management and compliance—through精细化 market design and support for permissioned markets. Grayscale’s endorsement highlights the growing demand for protocols that enhance efficiency, reduce risk, and connect with legacy systems.
Notable Exits: Why Some Projects Were Removed
Lido DAO (LDO): Challenges for a Liquid Staking Giant
Lido DAO once dominated Ethereum liquid staking, managing about 33% of staked ETH. However, concerns over centralization risks emerged due to its permissioned validator set, LDO token’s control over core permissions, and a May 2025 hot wallet breach involving Chorus One.
The April 2023 Ethereum Shanghai upgrade, which enabled ETH withdrawals, eroded Lido’s liquidity advantage. Users now have more choices, including centralized platforms like Coinbase and Kraken, or emerging non-custodial alternatives. Competition intensified with innovations like EigenLayer’s restaking.
Grayscale’s removal of Lido reflects a reassessment of centralization risks. Post-Shanghai, Lido’s centralized traits became more pronounced amid growing competition and regulatory clarity—the SEC now regards protocol staking as a non-securities activity. The exit signals that institutional investors are raising their standards, prioritizing decentralization, governance transparency, and regulatory safety.
Optimism (OP): Great Vision, Uncertain Value Capture
Optimism is a leading Ethereum Layer 2 scaling solution, aimed at improving transaction capacity, reducing gas fees, and enhancing user experience. Its “Superchain” vision, powered by OP Stack, has attracted major projects like Coinbase’s Base chain. Yet, it trails behind competitors like Arbitrum in TVL and activity.
The OP token is central to Optimism Collective’s governance, but its revenue model has limitations. Currently, sequencer revenue goes to the Optimism Foundation to fund public goods rather than OP token holders. Although future revenue sharing is planned, this uncertainty affects the token’s value proposition for institutional investors.
Governance issues also persist. Low voter participation and significant control by core contributors and early investors challenge the network’s decentralization promises.
Grayscale’s decision to remove Optimism stems largely from concerns about its token value capture mechanism. Grand visions alone don’t guarantee token value—institutions prefer clear, direct value accrual paths. Low governance participation and concentrated voting power add complexity and risk. In a competitive Layer 2 landscape, Grayscale likely sees better risk-adjusted returns elsewhere. This exit underscores that technical superiority isn’t enough; tokens need sustainable value models and truly decentralized governance.
Broader Trends: What Grayscale’s List Tells Us About 2025
The Institutional Tide: From Bitcoin to Diversified Applications
Institutional interest in digital assets continues to surge. A recent survey shows that 86% of institutional investors already hold or plan to allocate to digital assets, with nearly 59% intending to invest over 5% of their AUM in crypto. The approval of Bitcoin and Ethereum ETFs has opened doors to mainstream finance—BlackRock’s Bitcoin ETF, for instance, achieved record-breaking growth.
This interest extends far beyond Bitcoin and Ethereum. Data indicates that 73% of investors hold alternative cryptocurrencies, and DeFi participation is expected to triple within two years. Real-world asset (RWA) tokenization and stablecoin adoption are accelerating, with a total market cap of $234 billion. Protocols like Aave are bridging DeFi with traditional finance.
In short, institutional investing is shifting from pure “Bitcoin belief” to diversified portfolios and real-world applications. Grayscale’s inclusion of Avalanche and Morpho epitomizes this move “from speculation to utility.”
DeFi’s Evolution: From Wild Growth to Refined Survival
DeFi’s TVL surged 129% in 2024, and decentralized exchange (DEX) derivatives volume jumped 872%. The sector is evolving to include yield-bearing stablecoins, attracting traditional finance players. Embedded finance, automation, and AI/ML trends are reshaping the landscape—exemplified by Morpho’s lending innovations.
DeFi is maturing from “wild growth” to “refined survival.” Layer 2 solutions and AI/ML applications address pain points and improve efficiency. Yield-bearing stablecoins and embedded finance expand product offerings and enable seamless traditional finance integration. The growth of derivatives DEXs and Morpho’s institutional pathway show DeFi meeting complex trading and risk management needs. Grayscale’s backing of Morpho acknowledges this evolution—favoring protocols that boost efficiency, reduce risk, and connect with legacy systems.
Layer 2 Competition: Ecosystem, Tech, and Value Models
Layer 2 solutions act as Ethereum’s “highways,” significantly boosting scalability and reducing user costs. Optimistic Rollups (like Optimism and Arbitrum) and ZK-Rollups are the leading technologies. The market is highly competitive, with Arbitrum still leading in TVL and protocol count. Optimism’s Superchain vision and OP Stack focus on building an interoperable ecosystem, attracting heavyweights like Base.
The Layer 2 race is now about ecosystem building and token value capture. Optimism’s removal highlights that even ambitious ecosystems need clear token value mechanisms to retain institutional interest. Grayscale’s evaluation goes beyond surface metrics to long-term value creation and distribution.
Regulatory Clarity: Compliance as a Gateway for Institutional Capital
The U.S. regulatory environment for crypto is gradually clarifying, acting as a “filter” for institutional entry. The SEC has issued new guidelines stating that protocol staking is not a securities offering. Congress passed legislation eliminating IRS broker reporting requirements for DeFi platforms without traditional fiat on-ramps.
Clear regulations are a key “catalyst” for institutional adoption, reducing legal and operational risks. However, they also mean stricter compliance demands. Lido’s removal may partly reflect concerns over its permissioned model and centralized governance. As a regulated asset manager, Grayscale highly values compliance. This shows that in 2025 and beyond, compliance is essential for attracting institutional capital.
Frequently Asked Questions
What is Grayscale’s Top 20 Assets list?
Grayscale Investments compiles a quarterly list of the top 20 crypto assets based on institutional interest, innovation, and market trends. It serves as a indicator of where smart money is flowing in the crypto space.
Why was Avalanche (AVAX) added to the list?
Avalanche was added due to its strong technical fundamentals, growing transaction volume, and strategic partnerships with enterprises like AWS. Its focus on scalable solutions and real-world asset tokenization aligns with institutional demand for practical blockchain applications.
What led to Lido’s removal from the list?
Lido was removed primarily over concerns about centralization risks and increased competition in liquid staking. Regulatory developments and security incidents also contributed to Grayscale’s decision.
How does Morpho represent DeFi’s evolution?
Morpho exemplifies DeFi’s shift toward institutional-grade services, with enhanced security, compliance features, and traditional finance integration. Its growth reflects rising demand for sophisticated lending solutions.
What should investors learn from these changes?
Investors should focus on projects with clear value capture, strong governance, real-world utility, and compliance readiness. Diversification and due diligence are key in a rapidly changing market.
Are Layer 2 solutions still a good investment?
Layer 2 solutions remain promising, but success depends on ecosystem growth and sustainable token economics. Investors should evaluate each project’s value accrual model and governance structure.
Conclusion
Grayscale’s Q3 Top 20 adjustments reflect a broader institutional shift toward projects with technological innovation, real-world utility, sustainable value models, and decentralized governance. The inclusion of Avalanche and Morpho highlights confidence in high-performance blockchains for GameFi/enterprise use and institutional DeFi lending. The removal of Lido and Optimism warns of the risks associated with centralization and unclear value capture.
Key takeaways for 2025 crypto investing:
- Application-Driven Layer 1/Layer 2s: Prioritize platforms that attract large-scale users and enterprise applications through technical innovation.
- Institutional-Grade DeFi Infrastructure: Support protocols that solve traditional finance pain points and connect on-chain and off-chain worlds.
- Clear Value Capture and Governance: Favor tokens with sustainable value mechanisms and effective decentralized governance.
- Compliance Readiness: Projects that embrace regulation and minimize legal risks will gain institutional favor.
For crypto participants, Grayscale’s list offers strategic guidance. Investors should look beyond short-term speculation and assess fundamentals, tokenomics, and compliance. Builders should focus on sustainable economic models, decentralized governance, and traditional finance integration. As the market moves from “wild growth” to “refined cultivation,” understanding these structural shifts is crucial for long-term success. 👉 Explore more institutional crypto trends