The Grayscale Q3 Top 20 list has been released, with AVAX and MORPHO making the cut, while LDO and OP have been eliminated.

Avalanche, with its high-performance public chain technology and enterprise-level application potential, has gained favor, while Morpho promotes the institutional development of Decentralized Finance.

Written by: Luke, Mars Finance

Clearing the Fog, Where Does the Grayscale Ranking Point To?

In the ever-changing world of cryptocurrency, the movements of institutional capital often serve as key clues to future insights. Grayscale Investments, as a pioneer in the field of crypto asset management, updates its Top 20 asset list every quarter, which resembles a "treasure map" of the crypto market from an institutional perspective, outlining a deep prediction of the "factual adoption trend" for the next phase of the market.

In the third quarter of 2025, Grayscale's "treasure map" has quietly adjusted: the rising stars Avalanche (AVAX) and Morpho (MORPHO) have jumped onto the list, while the former giants Lido DAO (LDO) and the Layer 2 hopeful Optimism (OP) have unfortunately exited. What changes in the winds of the crypto market are hidden between this entry and exit? We will delve into this together, unveiling the new narrative of crypto investment in 2025 behind what seems to be a routine list change.

Signals of Structural Reform

The Strong Pulse of Avalanche AVAX On-Chain

Avalanche (AVAX) depicts a scalable and customizable blockchain future. Its "Avalanche Consensus Mechanism" achieves high throughput, low latency, and decentralization, while the three-chain architecture (X-Chain, C-Chain, P-Chain) ensures sub-second transaction finality, laying the groundwork 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 demand for GameFi and enterprise-level applications, with games like MapleStory Universe launching on Subnets. It also actively embraces the traditional world, collaborating with Web2 giants such as Amazon Web Services (AWS) and Alibaba Cloud 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 because of its technological advancements, strategic ecosystem expansion, and the formation of a "multi-dimensional growth flywheel" through the integration with Web2. This indicates that Layer 1 competition is shifting towards a new track that is broader and has the potential for real economic activities and the integration of Web2/Web3.

Morpho MORPHO "Transformers" style decentralized lending

Morpho (MORPHO) is charting a new institutional path for decentralized lending. It is a DeFi lending protocol based on Ethereum and the Base chain that optimizes yields and ensures security through "Morpho Vaults" and isolated markets. The protocol design focuses on low transaction fees and has undergone more than 25 audits.

Morpho has achieved remarkable results: annual fee revenue reaches 100 million USD, total locked value (TVL) has doubled to over 4 billion USD, firmly holding 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 firms such as a16z Crypto and Pantera Capital have invested over 69 million USD.

More significantly, Coinbase has integrated Morpho into its main application, allowing users to borrow USDC by collateralizing with Bitcoin, which is one of the largest institutional-grade adoption cases of DeFi to date. The release of Morpho V2 further demonstrates the commitment to bringing DeFi into traditional financial institutions.

The rise of Morpho validates its potential as a "Decentralized Finance Institutional Engine." It 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. Grayscale favors it precisely because it enhances DeFi efficiency, reduces risk, and can effectively connect with traditional finance.

The Old General Leaves: A Farewell to Lido and Optimism

Lido DAO LDO Liquid Staking "Empire" 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 are concerns about its centralization risks: the "permissioned" validator set, the control of core permissions by the LDO token, and the incident in May 2025 where Chorus One's hot wallet was compromised, all of which have sounded the alarm.

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

Lido being removed is a reflection of Grayscale's reassessment of "centralization risk". After the Shanghai upgrade, Lido's "centralization" characteristics have become more pronounced against the backdrop of intensified competition and clarified regulation (the SEC views "protocol staking" as a non-security activity). 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.

The grand vision of Optimism OP Layer 2 is trapped in the "myth" of value capture.

Optimism, as a leading Ethereum Layer 2 scaling solution, carries the responsibility of enhancing transaction capabilities, reducing Gas fees, and improving user experience. Its "Superchain" vision has attracted star projects like Coinbase's Base chain through the OP Stack. However, in terms of TVL and activity, it still lags slightly behind its competitor Arbitrum.

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 sequencers belongs to the Optimism Foundation, which is used 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.

Moreover, the governance of Optimism is not without its challenges. Low voter participation and 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.

Optimism has been removed, which is more like Grayscale's profound skepticism about its OP token's "value capture mechanism." A grand ecological vision cannot be directly converted into a clear value for the token. Institutional investors tend to favor clear and direct token value capture paths. Low governance participation and the core team's concentration of voting power also increase the complexity and risks of institutional investment. In the face of intense competition in the Layer 2 track, Grayscale may believe that OP is unlikely to provide "more attractive risk-adjusted returns" in the short term. Optimism's exit reflects a deepening of institutional assessments of Layer 2 token economics: mere technological leadership is insufficient to support long-term value; tokens must possess clear, sustainable value capture mechanisms and true decentralized governance.

Behind the List: The "Barometer" and "Structural Changes" of Crypto 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 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 cryptocurrencies. The successive approvals of Bitcoin and Ethereum ETFs have opened the doors of the mainstream financial world to cryptocurrencies, with BlackRock's Bitcoin ETF even setting the record for the fastest growth in history.

This tide has long surpassed the two "islands" of Bitcoin and Ethereum. Data shows that 73% of investors already hold alternative cryptocurrencies, with participation in Decentralized Finance (DeFi) expected to triple in the next 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 protocols like Aave connecting DeFi with traditional finance.

Institutional investment is moving from a simple "Bitcoin faith" to a vast 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 surface" and "from speculation to application."

The "Evolution" of DeFi from "Barbaric Growth" to "Refined Survival"

In 2024, the total locked value (TVL) of DeFi surged by 129%, and the trading volume of decentralized exchanges (DEXs) skyrocketed by 872%. DeFi is developing yield-bearing stablecoins, attracting 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.

Decentralized Finance 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 and seamlessly integrate with traditional finance. The explosive growth of derivative DEXs and Morpho's institutional pathway indicate that DeFi is meeting the complex trading and risk management needs of institutions. Grayscale's favor towards Morpho recognizes the trend of DeFi's "self-evolution and external integration," and is optimistic about protocols that can enhance efficiency, reduce risk, and connect with traditional finance.

Layer 2's "Racing" ecology, technology, and value capture comprehensive competition

Layer 2 solutions, like Ethereum's "highway", significantly enhance its scalability and reduce user costs. Optimistic Rollups (such as Optimism and Arbitrum) and ZK-Rollups are mainstream technologies. The Layer 2 market is highly competitive, with Arbitrum currently leading in TVL and the number of protocols. Optimism is dedicated to building an interoperable ecosystem through its "super chain" vision and OP Stack, attracting heavyweight projects such as Coinbase's Base chain.

The competition of Layer 2 has shifted to a comprehensive contest of "ecosystem building capability" and "token value capture model." 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 centralization risks, it is difficult to gain long-term favor from institutions. Grayscale's evaluation of Layer 2 has gone beyond surface indicators, delving into mechanisms of long-term sustainable value creation and distribution.

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 clearer, like a "filter" that paves the way 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 offering. The U.S. Congress passes a bill that abolishes the IRS broker reporting obligations for DeFi platforms (non-traditional fiat currency deposits and withdrawals).

Regulatory clarity is a key "catalyst" for institutions to enter the crypto market on a large scale, while also serving as a precise "filter." It reduces the legal and operational risks for institutions and encourages more compliant entities to enter the PoS ecosystem and Decentralized Finance. However, clear regulations also mean stricter compliance requirements. Lido was removed, possibly partly due to concerns over its "licensing system" and governance centralization. Grayscale, as a strictly regulated asset management company, places great emphasis on compliance in its investment decisions. This indicates that, from 2025 onwards, compliance has evolved into a "ticket" for attracting institutional capital.

Summary

The adjustment of the Grayscale Top 20 asset list clearly outlines the evolution path of institutional investment in the cryptocurrency 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 the development of DeFi lending towards institutional-level and compliance-oriented approaches. The exclusion of Lido DAO and Optimism serves as a warning about the centralized risks of liquid staking, as well as 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:

• The future of application-driven Layer 1/Layer 2 belongs to public chains and scaling solutions that can attract a large number of users and enterprise-level applications through technological innovation.
• Institutional-level Decentralized Finance infrastructure is favored by the market for its ability to address pain points in traditional finance and to connect on-chain and off-chain worlds through DeFi protocols.
• 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, the Grayscale rankings provide valuable strategic guidance. Investors should move beyond short-term speculation and delve into project fundamentals, technological innovations, ecosystems, token economics, and compliance. Project builders need to develop healthy and sustainable economic models while achieving technological breakthroughs, strengthen decentralized governance, and actively integrate with the traditional financial world to seize institutional funding opportunities. By 2025, the crypto market is transitioning from "barbaric growth" to "meticulous cultivation," as the reference article states: "Value discovery often does not happen because something is cheap, but because the structure is right." Understanding the beauty of the underlying structure is key to grasping the future.