Author: Grayscale Research
Translator: Bai Hua Blockchain
In Q4 2024, the crypto market performed strongly, with the FTSE/Grayscale Crypto Industry Index Series showing that the main driver of the market surge was the positive market reaction to the US election results.
In the smart contract platform sector, competition remains fierce. As the leader in this category, Ethereum's performance lagged behind Solana, the second-largest by market cap. Investors' attention continued to shift towards alternative Layer 1 networks such as Sui and The Open Network (TON).
We have updated Grayscale Research's top 20 asset list. This list covers a diversified portfolio of assets across the crypto industry that we believe have high potential in the coming quarter. New additions this quarter include HYPE, ENA, VIRTUAL, JUP, JTO, and GRASS. It's important to note that all assets in the top 20 list have high price volatility and are considered high-risk assets.
The Grayscale Crypto Industry Framework provides a comprehensive analytical tool for understanding the investable digital asset landscape and its relationship to underlying technologies. Building on this framework, and in collaboration with FTSE Russell, we have developed the FTSE Grayscale Crypto Industry Index Series to measure and monitor the crypto asset category. Grayscale Research incorporates these crypto industry indices into its ongoing analysis of the digital asset market.
Figure 1: Our crypto industry indices delivered positive returns in 2024
In Q4 2024, crypto asset valuations surged significantly, primarily driven by the market's positive reaction to the US election results. According to our comprehensive Crypto Sector Market Index (CSMI), the industry's total market capitalization jumped from $1 trillion to $3 trillion this quarter. Figure 2 compares the crypto market's total value to various traditional public and private market asset classes. For example, the digital asset industry's market cap is roughly equivalent to the global inflation-linked bond market, more than double the size of the US high-yield bond market, but still significantly smaller than the global hedge fund industry or the Japanese stock market.
Figure 2: The crypto market cap increased by $1 trillion in Q4 2024
With the increase in valuations, many new Tokens met the inclusion criteria for our Crypto Industry Framework (most assets require a minimum market cap of $100 million). In this quarter's rebalance, we added 63 new assets to the index series, bringing the total to 283 Tokens. The largest number of new additions came from the consumer and culture crypto sectors, reflecting the continued strong returns of memecoins and the appreciation of various assets related to gaming and social media. The largest new asset added by market cap this quarter was Mantle, an Ethereum Layer2 protocol that has now met our minimum liquidity requirements.
Competition in Smart Contract Platforms
The smart contract platform crypto sector is likely one of the most competitive market segments in the digital asset industry. While 2024 was a landmark year for the category leader Ethereum - with the approval of a spot ETF in the US and the completion of a major upgrade - its Token Ether underperformed some of its competitors, including Solana, the second-largest in the category. Investors have also turned their attention to other Layer1 networks, including high-performance blockchains like Sui, as well as the blockchain integrated with the Telegram messaging platform, TON.
In creating infrastructure for application developers, the designers of smart contract blockchains face various design choices. These choices impact the three factors that make up the "blockchain trilemma": network scalability, network security, and network decentralization. For example, prioritizing scalability often manifests as high transaction throughput and low fees (e.g., Solana), while prioritizing decentralization and network security may result in lower throughput and higher fees (e.g., Ethereum). These specific design choices lead to significant differences in block times, transaction throughput, and average transaction fees (see Figure 3).
Figure 3: Smart contract platforms have different technical characteristics
Regardless of design choices and the relative strengths and weaknesses of the networks, one source of value for smart contract platforms is their ability to generate network fee revenue. We have previously argued that fee revenue can be seen as a primary driver of Token value accumulation in this market segment, although other metrics like Total Value Locked (TVL) also need to be considered (see "The Battle for Smart Contract Platform Value"). As shown in Figure 4, there is a statistical relationship between smart contract platforms' fee revenue and their market capitalization. The stronger a network's ability to generate fee revenue, the greater its capacity to pass value to the network through Token burning or staking rewards.
In this quarter, the Grayscale Research top 20 list includes the following smart contract platforms: ETH, SOL, SUI, and OP.
Figure 4: All smart contract platforms are competing for fee revenue
Grayscale Research Top 20 List
Each quarter, the Grayscale Research team analyzes hundreds of digital assets to support the rebalancing process for the FTSE/Grayscale Crypto Industry Index Series. Based on this process, Grayscale Research publishes a top 20 asset list for the crypto industry. This list showcases a diversified portfolio of assets across multiple crypto industry sectors that we believe have high potential in the coming quarter (see Figure 4). Our approach considers a variety of factors, including network growth and adoption, potential catalysts, fundamental sustainability, Token valuation, Token supply inflation, and potential tail risks.
This quarter, we are particularly focused on Tokens related to the following three core market themes:
The US election and its potential impact on industry regulation, especially in decentralized finance (DeFi) and staking;
Continued breakthroughs in decentralized AI technology and the application of blockchain in AI agents;
The growth of the Solana ecosystem.
Based on these themes, we have added the following six assets to the Q1 2025 top 20 list:
Hyperliquid (HYPE): Hyperliquid is a Layer 1 blockchain designed to support on-chain financial applications, with its primary use case being a decentralized perpetual futures trading platform (DEX) with a fully on-chain order book.
Ethena (ENA): The Ethena protocol has developed a new stablecoin, USDe, primarily backed by hedged positions in Bitcoin and Ethereum. The protocol supports the stability of USDe by holding long positions in Bitcoin and Ethereum, while simultaneously holding short positions in perpetual futures contracts on these assets. The staking Token provides yield through the spot-futures price differential.
Virtuals Protocol (VIRTUAL): Virtuals Protocol is an AI agent platform built on Base, an Ethereum Layer 2 network. These AI agents can autonomously execute tasks, simulating human decision-making. The platform supports the creation and co-ownership of tokenized AI agents that can interact with the environment and other users.
Jupiter (JUP): Jupiter is the preferred DEX aggregator on Solana, with the highest total locked value (TVL) in the network. As more retail investors enter the crypto market through Solana, and speculation around Solana-based memecoin and AI proxy Tokens intensifies, we believe Jupiter is well-positioned in this rapidly growing market.
Jito (JTO): Jito is a liquid staking protocol on Solana. Jito has grown rapidly over the past year, with its financial performance ranking among the top in the entire crypto space, with fee revenue exceeding $550 million in 2024.
Grass (GRASS): Grass is a decentralized data network that rewards users with a Chrome plugin for sharing their unused internet bandwidth. This bandwidth is used for online data scraping, which is then sold to AI companies and developers for training machine learning models, effectively realizing data scraping while compensating users.
Figure 5: The updated Top 20 list covers DeFi applications, AI proxies, and the Solana ecosystem
Note: The shaded areas indicate new assets, applicable to the upcoming Q1 2025. *Assets marked with an asterisk are not included in the corresponding sector of the crypto industry index. Source: Artemis, Grayscale Investments.
Note that this data is as of December 20, 2024. For illustrative purposes only, assets may be subject to change at any time. Grayscale and its affiliates and clients may hold the digital assets mentioned in this text.
In addition to the new themes mentioned above, we remain excited about the themes we proposed in previous quarters, such as Ethereum scaling solutions, Tokenization, and Decentralized Physical Infrastructure (DePIN). These themes are reflected in the protocols that have returned to the Top 20 list, such as Optimism, Chainlink, and Helium.
This quarter, we have removed the following assets from the Top 20: TON, Near, Stacks, Maker (Sky), UMA Protocol, and Celo. Grayscale Research still believes these projects have value and they remain important components of the crypto ecosystem. However, we believe the adjusted Top 20 list may offer more attractive risk-adjusted returns in the coming quarter.
Investing in crypto asset classes carries risks, some of which are unique to crypto assets, including smart contract vulnerabilities and regulatory uncertainty. Additionally, all the assets in our Top 20 list are highly volatile and should be considered high-risk, and therefore may not be suitable for all investors. Given the risks of this asset class, any digital asset investment should be considered in the context of an investor's overall portfolio and their financial objectives.
Link to the article: https://www.hellobtc.com/kp/du/01/5614.html
Source: https://www.grayscale.com/research/market-commentary/grayscale-research-insights-crypto-sectors-in-q1-2025
