New Trends in the Crypto Market from the Perspective of Institutional Investors

In the ever-changing world of encryption, the movements of institutional capital are often the key clues to insight into the future. As a pioneer in the field of crypto asset management, Grayscale Investments updates its Top 20 asset list every quarter, resembling a "treasure map" of the crypto market from an institutional perspective, outlining a profound prediction of the upcoming phase of the market's "fact-based adoption trend."

In the third quarter of 2025, this "treasure map" has quietly adjusted: the rising star Avalanche (AVAX) and Morpho (MORPHO) have jumped onto the list, while the former giant Lido DAO (LDO) and Layer 2 hopeful Optimism (OP) have unfortunately exited. What trends in the crypto market are hidden behind this ebb and flow? Let's delve deeper to unveil 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 "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 invigorating on-chain activity.

Avalanche accurately captures the demands of GameFi and enterprise-level applications, with games like MapleStory Universe 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.

I am optimistic about Avalanche because of its technological advancements, strategic ecological expansion, and the "multi-dimensional growth flywheel" formed by the integration with Web2. This indicates that the competition for Layer 1 is shifting towards 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 the 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 fee revenue reached $100 million, total locked value (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. 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 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. Its appeal lies 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 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 its success lies concerns about its centralization risks: the "permissioned" validator set, the control of LDO tokens over core permissions, and the incident in May 2025 when Chorus One's hot wallet was breached, all of which serve as a warning.

In April 2023, the Ethereum Shanghai upgrade allowed for ETH withdrawals, weakening Lido's "moat" in terms of liquidity. Users have more choices and are turning to centralized platforms or emerging non-custodial competitors. Innovations like restaking with EigenLayer have also intensified the competition.

Lido's removal is a reflection of the reassessment of "centralization risk". After the Shanghai upgrade, Lido's "centralized" characteristics have become more prominent against the backdrop of intensified competition and clearer regulations. Its risk-reward ratio may no longer be attractive. Lido's exit signifies that institutional investors have raised their evaluation standards for liquid staking, placing more emphasis on decentralization, governance transparency, and potential regulatory risks.

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

As a leading Ethereum Layer 2 scaling solution, Optimism carries the important 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 unfortunately lags 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 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 token's direct value capture, leaving institutional investors with doubts.

In addition, the governance of Optimism has not been smooth sailing. The low voter participation and the significant control that core contributors and early investors have over the voting process indicate that the commitment to "decentralization" still has room for improvement in practice.

The removal of Optimism raises profound questions about the "value capture mechanism" of its OP tokens. Grand ecological visions do not directly translate into clear token value. 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 for institutional investment. In the face of fierce competition in the Layer 2 track, OP may 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 have a clear, sustainable value capture mechanism and genuine decentralized governance.

2025 Crypto Investment "Barometer" and "Structural Change"

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 rise. Surveys show that up to 86% of surveyed institutional investors have already held or plan to allocate digital assets, with nearly 60% (59%) planning to invest more than 5% of AUM into crypto. The successive approvals of Bitcoin and Ethereum ETFs are akin to the mainstream financial world opening its doors to cryptocurrencies.

This tidal 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 capitalization 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 scenario landing". The selection of Avalanche and Morpho is a profound reflection of the trend of institutional investment "from point to surface" and "from speculation to application".

The "Evolution" of DeFi: From "Wild 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-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 microcosm 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 improve 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. The preference for Morpho reflects recognition of the trend of DeFi's "self-evolution and external integration", with optimism for 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 its scalability and reduce user costs. Optimistic Rollups and ZK-Rollups are the mainstream technologies. The Layer 2 market is highly competitive, with one platform currently maintaining its 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 of Layer 2 has shifted to a comprehensive battle 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 poses centralization risks, it is still difficult to gain long-term favor from institutions. The 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 becomes clear, as if a "filter" is created for institutional funds to enter the crypto market. The U.S. Securities and Exchange Commission (SEC) issues new guidelines, clarifying that "protocol staking" is not a securities issuance. The U.S. Congress passes a bill that abolishes the IRS broker reporting obligations for DeFi platforms (non-traditional fiat currency deposits and withdrawals).

The clarification of regulations is a key "catalyst" for institutions to enter the crypto market on a large scale, and it also serves as a precise "filter". It reduces legal and operational risks for institutions and encourages more compliant organizations to enter the PoS ecosystem and DeFi. However, clearer regulations also mean stricter compliance requirements. Lido's removal may be partly due to concerns over its "license system" and governance centralization. As a highly regulated asset management company, investment decisions place a high emphasis on compliance. This indicates that, from 2025 onwards, compliance has upgraded to an "entry ticket" for attracting institutional capital.

Summary

The adjustment of the Top 20 asset list 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 the institutional-level and compliance-driven development of DeFi lending. The exit 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 applications through technological innovation.
• Institutional-grade DeFi infrastructure: The market favors DeFi protocols that can address the pain points of traditional finance and connect the on-chain and off-chain worlds.
• Clear value capture and decentralized governance: Tokens must 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.

For participants in the crypto world, this list provides valuable strategic guidance. Investors should go beyond short-term speculation and delve into the fundamentals of projects, technological innovations, ecosystems, token economics, and the balance of.