Decoding New Trends in Institutional Investment: Structural Changes in the Crypto Market by 2025

In the rapidly changing world of encryption, the movements of institutional capital are often key clues to insight into the future. In the third quarter of 2025, an important list of crypto assets 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 hope star Optimism(OP) have unfortunately exited. What shifts in the crypto market are hidden between this entry and exit? Let's delve deeper to unveil the new narrative of crypto investment in 2025.

Signals of Structural Change

Avalanche(AVAX): The strong pulse of the "heartbeat" on the chain.

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 stimulating on-chain activity.

Avalanche accurately captures the needs of GameFi and enterprise-level applications, with multiple games launched on the subnet ( 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.

Institutions are optimistic about Avalanche due to its technological advancements, strategic ecosystem expansion, and the "multi-dimensional growth flywheel" formed by its integration with Web2. This indicates that the competition among Layer 1 solutions 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 more than 25 audits.

Morpho has achieved remarkable results: annual fee revenue reached 100 million USD, total locked value (TVL) doubled to over 4 billion USD, firmly sitting in the second position for DeFi lending. On the Base chain, it is the largest protocol in terms of TVL and active loan volume. Top venture capital investments exceeded 69 million USD.

More significantly, a trading platform has integrated Morpho into its main application, allowing users to borrow USDC against Bitcoin collateral, which is one of the largest cases of DeFi institutional adoption 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 "DeFi institutionalization engine." It is well aware of the institutional requirements for risk management and compliance, addressing the pain points of traditional finance entering DeFi through refined market design and support for permissioned markets. Institutions favor it because they are optimistic about its ability to enhance DeFi efficiency, reduce risk, and effectively connect with traditional finance.

Farewell of the Old Guard: Lido and Optimism

Lido DAO(LDO): The liquidity 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 this success are concerns about its centralization risks: the "permissioned" validator set, control of core permissions by the LDO token, and the breach of the Chorus One hot wallet in May 2025 have all sounded alarm bells.

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

Lido's removal is a reflection of institutions' reassessment of "centralization risks". After the Shanghai upgrade, Lido's "centralized" characteristics have become more pronounced against the backdrop of intensified competition and clearer regulations. Institutions may believe that its risk-return ratio is no longer attractive. Lido's exit marks a higher standard of assessment by institutional investors regarding liquid staking, placing greater importance on decentralization, governance transparency, and potential regulatory risks.

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

Optimism, as a leading Ethereum Layer 2 scaling solution, carries the important responsibility of enhancing transaction capabilities, reducing Gas fees, and improving user experience. Its "superchain" (Superchain) vision has attracted several star projects through the OP Stack. However, in terms of TVL and activity, it still lags slightly behind its competitors.

OP tokens are the core of the Optimism Collective's decentralized governance structure. However, its revenue distribution model has a "myth": currently, the income from sequencers goes to the Optimism Foundation, which funds public goods, rather than being directly distributed to OP token holders. Although sharing is expected in the future, this uncertainty affects the direct value capture of the tokens, leaving institutional investors in doubt.

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

The removal of Optimism reflects a profound skepticism from institutions regarding its OP token's "value capture mechanism." Grand ecological visions do not directly translate into clear value for the token. Institutional investors tend to favor clear and direct paths to token value capture. Low governance participation and the concentration of voting rights among the core team also increase the complexity and risks of institutional investment. In the face of fierce competition in the Layer 2 space, institutions may believe that OP is unlikely to provide "more attractive risk-adjusted returns" in the short term. Optimism's exit indicates a deepening of institutional evaluations of Layer 2 token economics: mere technological leadership is insufficient to support long-term value; tokens must have clear, sustainable value capture mechanisms and truly decentralized governance.

The "Barometer" and "Structural Change" 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 up to 86% of surveyed institutional investors have held or plan to allocate digital assets, with nearly 60% planning to invest more than 5% of AUM into encryption. The successive approval of Bitcoin and Ethereum ETFs is like the mainstream financial world opening its doors to encryption, and a certain asset management company's Bitcoin ETF even set 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 now hold alternative encryption currencies, and participation in DeFi is 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 belief" to a broad deep sea of "diversified allocation" and "application scenario landing." The inclusion of Avalanche and Morpho is a profound reflection of the trend of institutional investment "from points to areas" and "from speculation to application."

( The "Evolution of DeFi": From "Barbaric Growth" to "Refined Survival"

In 2024, the total locked value in DeFi surged by 129%, with the trading volume of decentralized exchanges (DEXs) skyrocketing by 872%. DeFi is developing yield-generating 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 enhance 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 institutional favor towards Morpho recognizes the trend of DeFi's "self-evolution and external integration," with optimism for protocols that can enhance efficiency, reduce risk, and connect to traditional finance.

) Layer 2's "race": a comprehensive contest of ecosystem, 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 mainstream technologies. The Layer 2 market is highly competitive, with a certain platform still leading in TVL and the number of protocols. Optimism is dedicated to building an interoperable ecosystem through its "superchain" vision and OP Stack, attracting several heavyweight projects.

The competition for 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 risks of centralization, it is difficult to gain long-term favor from institutions. The evaluation of Layer 2 by institutions has surpassed surface indicators and delved into the mechanisms of long-term sustainable value creation and distribution.

The "filter" of regulation: compliance, the "ticket" for institutional funds to enter.

In 2025, the cryptocurrency regulatory environment in the United States gradually becomes clearer, acting as a "filter" for institutional funds entering the crypto market. The U.S. Securities and Exchange Commission ( SEC ) released new guidelines, clarifying that "protocol staking" is not a securities offering. The U.S. Congress passed a bill that abolished the reporting obligations for brokers to the Internal Revenue Service ( IRS ) regarding non-traditional fiat currency deposits and withdrawals on DeFi platforms (.

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

Conclusion

The adjustment of the crypto asset rankings clearly outlines the evolution path of institutional investment in the crypto market by 2025. It focuses on the technical innovation of projects, 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/corporate-level applications, as well as expectations for the development of DeFi lending towards institutional-level and compliance. The exclusion 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.

The core investment logic of the crypto market in 2025 can be summarized as:

1. Application-driven Layer 1/Layer 2: The future belongs to public chains and scaling solutions that can attract a large number of users and enterprise-level applications through technological innovation.

2. Institutional-level 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.

3. Clear value capture and decentralized governance: Tokens must have a clear and sustainable value capture mechanism and effective decentralized governance.

4. Compliance First: Projects that actively embrace compliance and reduce legal risks will be favored by institutions.

For participants in the encryption world, these changes provide valuable strategic guidance. Investors should go beyond short-term speculation and delve into the fundamental projects, technological innovations, ecosystems, token economics, and compliance. Project builders must, while achieving technological breakthroughs, create healthy and sustainable economic models, strengthen decentralized governance, and actively integrate with the traditional financial world, taking