Grayscale Investments' quarterly list of top digital assets offers a unique window into institutional thinking. As a pioneer in crypto asset management, their selections act as a barometer for broader market trends and "factual adoption." The recent Q3 update brought notable changes: newcomers like Avalanche (AVAX) and Morpho (MORPHO) joined the ranks, while established names like Lido DAO (LDO) and Optimism (OP) were removed. These shifts reveal deeper currents shaping crypto investment strategies in 2025.
Key Changes in the Top 20 List
New Entrants Showing Promise
Avalanche (AVAX): Scaling with Real-World Use
Avalanche stands out for its high-performance blockchain architecture. Its "Avalanche consensus" enables high throughput, low latency, and robust decentralization. The three-chain system (X-Chain, C-Chain, P-Chain) ensures sub-second transaction finality, making it ideal for mass adoption.
In 2025, Avalanche's C-Chain transaction volume surged from 250,000 to nearly 1.2 million. This growth followed the Etna upgrade, which reduced average transaction fees by over 90%. Such improvements have significantly boosted on-chain activity.
Avalanche has successfully targeted GameFi and enterprise applications. Major titles like MapleStory Universe have launched on its subnets. Partnerships with Web2 giants like Amazon Web Services (AWS) and Alibaba Cloud demonstrate a push toward real-world asset tokenization—a critical step for mainstream Web3 integration.
Grayscale's inclusion of Avalanche highlights confidence in its multi-faceted growth strategy, combining technical refinement, ecosystem expansion, and Web2 collaboration. This signals a broader shift in Layer 1 competition toward chains with real economic activity and fusion potential.
Morpho (MORPHO): DeFi Lending Goes Institutional
Morpho is redefining decentralized lending with a focus on security and efficiency. Operating on Ethereum and Base链, it uses "Morpho Vaults" and isolated markets to optimize yields while minimizing risks. The protocol emphasizes low transaction fees and has undergone over 25 audits.
Key achievements include $100 million in annualized fee income and a Total Value Locked (TVL) that doubled to over $4 billion, making it the second-largest DeFi lending protocol. On Base链, it leads in both TVL and active loan volume. Top venture firms like a16z Crypto and Pantera Capital have invested over $69 million.
A major milestone was Coinbase's integration of Morpho into its main app, allowing users to borrow USDC against Bitcoin collateral. This represents one of the largest institutional adoptions of DeFi to date. The release of Morpho V2 further underscores its aim to bridge DeFi with traditional finance.
Morpho's rise validates its role as an "institutional engine" for DeFi. By addressing risk management and compliance needs, it facilitates smoother entry for traditional finance players. Grayscale's endorsement reflects optimism about protocols that enhance efficiency, reduce risk, and connect disparate financial worlds.
Notable Exits and Their Implications
Lido DAO (LDO): Challenges in Liquid Staking
Lido DAO was once the dominant force in Ethereum liquid staking, managing about 33% of staked ETH. However, concerns over centralization risks have grown. Its permissioned validator set, LDO token control over core functions, and a May 2025 hot wallet breach at Chorus One raised red flags.
The April 2023 Ethereum Shanghai upgrade, which enabled ETH withdrawals, eroded Lido's liquidity advantage. Users now have more options, including centralized platforms like Coinbase and Kraken or non-custodial alternatives. Innovations like EigenLayer's restaking have intensified competition.
Grayscale's removal of Lido reflects a reassessment of centralization risks. Post-Shanghai, Lido's model faces heightened scrutiny amid regulatory clarity and increased alternatives. Institutions now prioritize decentralization, governance transparency, and regulatory compliance in their staking choices.
Optimism (OP): Struggling with Value Capture
Optimism is a leading Ethereum Layer 2 scaling solution, aimed at boosting transaction capacity and reducing fees. Its "Superchain" vision and OP Stack have attracted notable projects like Coinbase's Base链. However, it trails competitors like Arbitrum in TVL and activity metrics.
The OP token is central to Optimism's decentralized governance. Yet, its revenue model has been a point of contention: sequencer fees currently go to the Optimism Foundation for public goods funding rather than token holders. Though future sharing is planned, this uncertainty affects direct value capture.
Governance participation has also been low, with core contributors and early investors wielding significant influence. This has led to questions about the practicality of its decentralization promises.
Grayscale's decision to remove Optimism highlights concerns about its token economics. Grand visions must translate into clear value for investors. Low governance engagement and concentrated voting power add layers of risk. In a competitive Layer 2 landscape, protocols need robust value mechanisms and genuine decentralization to attract institutional capital.
Broader Trends in Crypto Investment
Institutional Diversification Beyond Bitcoin
Institutional interest in digital assets continues to surge. Surveys show that 86% of institutional investors currently hold or plan to allocate to crypto, with nearly 59% intending to invest over 5% of their assets under management. The approval of Bitcoin and Ethereum ETFs has opened floodgates, with BlackRock's Bitcoin ETF setting record growth rates.
This interest extends far beyond Bitcoin and Ethereum. About 73% of investors already 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 investment is evolving from pure "Bitcoin belief" to diversified, application-driven strategies. Grayscale's additions of Avalanche and Morpho exemplify this shift from speculation to utility.
DeFi Evolution: From Wild West to Refined Systems
DeFi's TVL surged 129% in 2024, while derivatives DEX volume jumped 872%. The space is now developing yield-bearing stablecoins and attracting traditional finance players. Trends like embedded finance, automation, and AI/ML are reshaping the landscape.
Morpho's success is a testament to DeFi's maturation. The sector is moving from "wild growth" to "refined survival," with Layer 2 and AI/ML addressing pain points. Yield-bearing products and embedded finance enable seamless traditional integration. Derivatives growth and institutional pathways show DeFi meeting complex needs—a trend Grayscale recognizes by backing protocols that enhance efficiency and reduce risk.
Layer 2 Race: Beyond Technology to Value
Layer 2 solutions are essential Ethereum "highways," improving scalability and reducing costs. Optimistic Rollups (e.g., Optimism, Arbitrum) and ZK-Rollups are the main technologies. Competition is fierce, with Arbitrum leading in TVL and protocol count.
The battle now centers on ecosystem building and token value models. Optimism's removal underscores that even great technology needs clear value capture. Grayscale's evaluation goes beyond surface metrics to long-term sustainability and distribution mechanisms.
Regulatory Clarity: The New Gateway
2025 has brought clearer crypto regulation in the U.S., acting as a "filter" for institutional entry. The SEC clarified that "protocol staking" is not a securities offering, and Congress passed laws easing IRS reporting requirements for DeFi platforms.
This clarity reduces legal risks, encouraging more participation in PoS and DeFi. However, it also raises compliance standards. Lido's exit may partly reflect concerns about its permissioned model. As a regulated entity, Grayscale prioritizes compliance—making it a non-negotiable "entry ticket" for institutional capital.
Frequently Asked Questions
What is Grayscale's Top 20 list, and why does it matter?
Grayscale's list reflects institutional sentiment and adoption trends. It highlights assets believed to have strong growth potential based on technology, use cases, and compliance. This makes it a valuable indicator for market direction.
Why was Avalanche (AVAX) added to the list?
Avalanche was added due to its scalable architecture, partnerships with major firms, and surge in real-world applications like GameFi and enterprise solutions. Its transaction fee reduction and growing activity made it stand out.
What led to Lido's removal from the list?
Lido faced concerns over centralization risks, increased competition post-Shanghai upgrade, and regulatory scrutiny. Grayscale's move signals a shift toward more decentralized and compliant staking options.
How does Morpho represent changes in DeFi?
Morpho focuses on institutional needs with isolated markets, audits, and traditional finance integration. Its inclusion shows DeFi's evolution toward security, efficiency, and broader adoption.
What should investors learn from these changes?
Investors should look beyond short-term gains to assess fundamentals: technology, tokenomics, governance, and compliance. Diversification and real-world utility are key themes for 2025.
Are Layer 2 solutions still a good investment?
Yes, but value depends on clear token economics and decentralization. Protocols with strong ecosystems and sustainable models are better positioned for long-term growth.
Conclusion
Grayscale's updated Top 20 list reveals a crypto market maturing toward utility and compliance. New entrants like Avalanche and Morpho highlight the demand for scalable infrastructure and institutional DeFi. Exits like Lido and Optimism underscore the risks of centralization and vague value capture. For 2025, focus on applications, clear tokenomics, and regulatory alignment will be crucial. As the market moves from "wild growth" to "refined execution," understanding these structural shifts is key to capturing future opportunities. To explore more strategies for navigating these trends, check out comprehensive market analysis tools.