Grayscale Investments, a pioneer in cryptocurrency asset management, periodically releases its Top 20 digital assets list—a snapshot of institutional sentiment and a barometer for emerging trends. The Q3 2025 update brought notable changes: Avalanche (AVAX) and Morpho (MORPHO) joined the ranks, while Lido DAO (LDO) and Optimism (OP) were removed. These shifts reflect deeper movements within the crypto market, highlighting where institutional capital is flowing and what sectors are gaining traction.
This analysis breaks down the implications of these changes, exploring the technological, economic, and regulatory factors influencing Grayscale’s decisions. From the rise of scalable Layer 1 solutions and institutional-grade DeFi to the reassessment of staking and Layer 2 tokenomics, these updates signal a maturation in crypto investing.
The New Entrants: Innovation and Institutional Adoption
Avalanche (AVAX): Scaling for Real-World Use
Avalanche has distinguished itself through its high-performance blockchain architecture. Its unique three-chain system—comprising the Exchange Chain (X-Chain), Contract Chain (C-Chain), and Platform Chain (P-Chain)—enables sub-second transaction finality, high throughput, and robust customization. The Snowman consensus mechanism underpins this efficiency, balancing speed with decentralization.
In 2025, Avalanche’s C-Chain recorded a dramatic surge in activity, with daily transactions climbing from 250,000 to nearly 1.2 million. This growth was fueled by the Etna upgrade, which slashed average transaction fees by over 90%, making the network more accessible and economical for users and developers.
Strategic partnerships have been central to Avalanche’s expansion. Collaborations with Amazon Web Services (AWS) and Alibaba Cloud have opened doors for enterprise adoption and real-world asset (RWA) tokenization. Additionally, its subnet functionality has attracted major gaming projects like MapleStory Universe, highlighting its versatility in hosting dedicated app-specific chains.
Grayscale’s inclusion of AVAX signals confidence in its multi-faceted growth strategy—combining technical refinement, ecosystem diversification, and bridges to traditional business infrastructure.
Morpho (MORPHO): DeFi Lending for Institutions
Morpho represents a new wave of DeFi protocols designed with institutional needs in mind. Operating on Ethereum and Base Chain, it enhances lending efficiency through its innovative Morpho Vaults and isolated markets. These features optimize yields while minimizing risk, all backed by over 25 security audits.
The protocol’s traction speaks for itself: it has generated $100 million in annualized fee revenue, doubled its total value locked (TVL) to over $4 billion, and secured its position as the second-largest lending protocol in DeFi. On Base Chain, it leads in both TVL and active loan volume. Venture backing from firms like a16z Crypto and Pantera Capital, totaling more than $69 million, further validates its model.
A landmark partnership with Coinbase integrates Morpho directly into its platform, allowing users to borrow USDC against Bitcoin collateral. This represents one of the most significant DeFi integrations by a major financial institution to date.
Morpho’s addition to Grayscale’s list underscores a shift toward compliant, efficient, and institution-friendly DeFi infrastructure. Its focus on permissioned markets and risk management aligns with the requirements of traditional finance, facilitating broader adoption.
The Departures: Lessons in Risk and Value Capture
Lido DAO (LDO): Challenges in Liquid Staking
Lido once dominated the liquid staking space, accounting for roughly 33% of all staked Ethereum. However, concerns over centralization emerged due to its permissioned validator set and the outsized governance influence held by LDO token holders. A security incident in May 2025, involving a hot wallet breach at validator Chorus One, exacerbated these concerns.
The Ethereum Shanghai upgrade, which enabled staked ETH withdrawals, reduced Lido’s competitive moat. Users now have more alternatives, including centralized exchanges like Coinbase and Kraken, as well as non-custodial staking services. The emergence of restaking platforms like EigenLayer has also intensified competition.
Grayscale’s decision to remove LDO appears influenced by these accumulating risks—both technical and regulatory. As staking markets mature, investors are prioritizing protocols with stronger decentralization and transparent governance.
Optimism (OP): The Struggle for Value Accrual
Optimism is a leading Ethereum Layer 2 scaling solution, renowned for reducing gas fees and improving transaction speeds. Its “Superchain” vision, enabled by the OP Stack, has attracted high-profile projects like Coinbase’s Base Chain. Despite this, it has lagged behind competitors like Arbitrum in TVL and user activity.
A central issue for investors has been OP’s tokenomics. Currently, sequencer revenue is directed to the Optimism Foundation for public goods funding rather than to token holders. Although future changes may enable revenue sharing, this uncertainty has clouded its value proposition.
Governance participation has also been lackluster, with relatively low voter turnout and significant influence retained by core developers and early investors. These factors have made institutional investors cautious about OP’s long-term value capture mechanisms.
Optimism’s removal from Grayscale’s list highlights the growing emphasis on sustainable token economics and genuine decentralization in Layer 2 investments.
Broader Trends in Crypto Investing
Institutional Diversification Beyond Bitcoin and Ethereum
Institutional interest in digital assets continues to grow. Recent surveys indicate that 86% of institutional investors already hold or plan to allocate to cryptocurrencies, with 59% intending to invest more than 5% of their assets under management. The approval of Bitcoin and Ethereum ETFs has facilitated this entry, providing regulated exposure to crypto assets.
Notably, this interest is expanding beyond the two largest cryptocurrencies. About 73% of institutions now hold alternative cryptocurrencies, and participation in DeFi is expected to triple within two years. Real-world asset tokenization and stablecoin adoption are also accelerating, with the combined market cap reaching $234 billion.
Grayscale’s updated list reflects this broadening focus—from pure-play stores of value to platforms enabling real-world utility and financial innovation.
The Evolution of DeFi: Toward Efficiency and Compliance
DeFi is transitioning from a experimental niche to a mature financial sector. In 2024, the total value locked in DeFi protocols grew by 129%, and trading volume on decentralized derivative exchanges surged by 872%. New developments in yield-bearing stablecoins, automated strategies, and AI-enhanced protocols are pushing the boundaries of what’s possible.
Morpho’s rise exemplifies this shift—it combines sophisticated risk isolation with user-friendly features that appeal to institutions. As DeFi continues to integrate with traditional finance, protocols that emphasize security, compliance, and capital efficiency are likely to lead the next growth phase.
Layer 2 Competition: More Than Just Technology
The Layer 2 landscape is increasingly competitive. While technologies like Optimistic Rollups and ZK-Rollups are critical for scaling Ethereum, success now depends on more than technical merit. Ecosystem development, user engagement, and sustainable token models are equally important.
Projects that fail to articulate a clear value proposition for their native tokens—or that lack decentralized governance—may struggle to retain institutional interest. Grayscale’s reassessment of Optimism underscores this broader trend.
Regulatory Clarity as a Catalyst
Regulatory developments in 2025 have provided much-needed clarity for institutional participants. The SEC’s new guidelines clarifying that protocol staking does not constitute a securities offering, along with Congressional action easing reporting requirements for DeFi platforms, have reduced legal uncertainty.
This regulatory maturation acts as a double-edged sword: it encourages institutional participation but also raises the compliance bar. Projects that prioritize regulatory alignment—like Morpho with its permissioned markets—are better positioned to attract capital.
Frequently Asked Questions
What is Grayscale’s Top 20 list?
Grayscale’s Top 20 list is a quarterly selection of digital assets that the firm believes represent significant institutional interest and market potential. It serves as a indicator of emerging trends and shifting investment priorities.
Why was Avalanche added to the list?
Avalanche was added due to its strong technical infrastructure, growing transaction volume, strategic partnerships with enterprises, and leadership in hosting real-world applications like gaming and asset tokenization.
What led to Lido’s removal?
Lido was removed primarily because of concerns over centralization, increased competition in liquid staking, and regulatory uncertainties surrounding staking protocols.
How does Morpho appeal to institutions?
Morpho offers isolated lending markets, enhanced risk management, and compliance-friendly features. Its integration with major platforms like Coinbase makes it accessible to a broader audience.
What does Optimism’s exclusion signify?
Optimism’s removal reflects institutional caution regarding unclear token value accrual mechanisms and governance centralization—factors increasingly important in Layer 2 investments.
How is regulatory clarity affecting crypto investments?
Clearer regulations reduce legal risks for institutions, encouraging greater participation. However, they also raise compliance standards, favoring projects that align with regulatory expectations.
Conclusion
Grayscale’s Q3 2025 Top 20 update reveals a crypto market in transition—one that values utility, security, and sustainability over pure speculation. The inclusion of Avalanche and Morpho highlights the growing importance of scalable infrastructure and institutional DeFi solutions. Meanwhile, the removal of Lido and Optimism underscores the risks of centralization and ambiguous value capture.
For investors, these changes emphasize the need to focus on fundamentals: technology, tokenomics, governance, and compliance. For builders, they signal an opportunity to create more resilient, transparent, and adoption-ready platforms. As the industry continues to evolve, 👉 explore more strategies for navigating this dynamic landscape with confidence.