The new assets added in Q1 2025 include HYPE, ENA, VIRTUAL, JUP, JTO and GRASS.

Source:Grayscale Research

Translated by: Golem, Odaily

Summary:

1. The crypto market saw a significant surge in Q4 2024, with the FTSE/Grayscale Crypto Sectors index showing strong market performance. The gains largely reflect the market's positive reaction to the US election results.

2. The competition in the smart contract platform sector remains fierce. The leading platform Ethereum has underperformed its closest competitor Solana in terms of price, and investors are also increasingly focused on other Layer 1 networks such as Sui and The Open Network (TON).

3. Grayscale Research has updated its Top 20 token list. The list represents a diversified set of crypto assets that may have high potential in the coming quarter. The new assets added in Q1 2025 include HYPE, ENA, VIRTUAL, JUP, JTO and GRASS. All assets in the Top 20 list have high price volatility and should be considered high-risk.

Grayscale Crypto Sectors Index

Grayscale Crypto Sectors provides a comprehensive framework for understanding the investable universe of digital assets and their relationship to underlying technologies. Based on this framework, and in collaboration with FTSE Russell, Grayscale has developed the FTSE Grayscale Crypto Sectors index series to measure and monitor crypto assets (Figure 1). Grayscale Research incorporates this index into its analysis of the digital asset market.

Crypto asset valuations soared in Q4 2024, primarily driven by the market's positive reaction to the US election results. According to the Crypto Sectors Market Index (CSMI), the industry's total market capitalization increased from $1 trillion to $3 trillion this quarter. Figure 2 compares the total market value of crypto assets to various traditional public and private market asset classes. For example, the current market value of the digital asset industry is roughly equivalent to the global inflation-linked bond market - more than twice the size of the US high-yield bond market, but still far below the global hedge fund industry or the Japanese stock market.

Due to the increase in valuations, many new tokens have met the inclusion criteria for Grayscale's Crypto Sectors framework (which requires a minimum market capitalization of $100 million for most tokens). This quarter's rebalancing saw Grayscale add 63 new assets to the index series, now totaling 283 tokens. The consumer and culture sectors saw the most new token additions, reflecting the continued strong returns of meme coins and the appreciation of various assets related to gaming and social media.

By market capitalization, the largest new addition to Crypto Sectors is Mantle, an Ethereum Layer 2 protocol that has now met the minimum liquidity requirements (for more details on Grayscale's index inclusion criteria, seehere).

Smart Contract Platform Competition

The smart contract platform sector is likely the most fiercely competitive segment of the digital asset industry. While 2024 was a milestone year for the sector's leader Ethereum - with Ethereum gaining approval for a US spot exchange-traded product (ETP) and undergoing a major upgrade - ETH's performance has lagged some of its competitors, such as Solana, the second-largest asset in the sector. Investors have also turned their attention to other L1 networks, including high-performance blockchains like Sui and the blockchain integrated with the Telegram platform, TON.

In creating infrastructure for application developers, the architects of smart contract blockchains face various design choices. These design 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 design choices lead to different block times, transaction throughput, and average transaction fees (Figure 3).

Regardless of the design choices and the strengths and weaknesses of the networks, smart contract platforms derive their value through the network fee revenue they generate. While other metrics (such as total TVL) are also important, fee revenue can be seen as the primary driver of token value accretion in this market segment (related reading:The Battle for Value in Smart Contract Platforms).

As shown in Figure 4, there is a statistical relationship between smart contract platform fee revenue and market capitalization. The stronger a network's ability to generate fee revenue, the greater its ability to pass value on to the network in the form of token burns or staking rewards. This quarter, Grayscale Research's Top 20 token list includes some smart contract platform tokens: ETH, SOL, SUI and OP.

Grayscale Research Top 20 Token List

Each quarter, the Grayscale Research team analyzes hundreds of digital assets to inform the rebalancing process for the FTSE/Grayscale Crypto Sectors index series. Following this process, Grayscale Research generates a list of the top 20 assets within the Crypto Sectors domain. The top 20 represent a diversified set of assets across the Crypto Sectors and are those that may have the highest potential in the coming quarter (Figure 4). The selection of this list combines a range of factors, including network growth/adoption, upcoming catalysts, the sustainability of fundamentals, token valuations, token supply inflation, and potential tail risks.

For Q1 2025, Grayscale will focus on tokens that involve at least one of the following three core market themes:

• The US election and its potential impact on industry regulation, particularly in areas like decentralized finance (DeFi) and staking;
• Continued breakthroughs in decentralized AI technology and the use of AI agents on blockchains;
• Growth in the Solana ecosystem.

Based on these themes, the following six assets have been added to the Q1 2025 Top 20 list:

1. Hyperliquid (HYPE): Hyperliquid is an L1 blockchain aimed at supporting on-chain financial applications. Its primary use case is a decentralized exchange (DEX) for perpetual futures trading, with fully on-chain but order book-based trading.

2. Ethena (ENA): The Ethena protocol has evolved to become a new stablecoin, USDe, primarily collateralized by long positions in Bitcoin and Ethereum. Specifically, the protocol holds long positions in Bitcoin and Ether as well as short positions in perpetual futures contracts on the same assets. The staked version of this token provides yields through the basis between spot and futures prices.

3. Virtual Protocol (VIRTUAL): Virtual Protocol is a platform for creating AI agents on the Ethereum L2 network Base. These AI agents are designed to mimic human decision-making and autonomously execute tasks. The platform allows for the creation and co-ownership of tokenized AI agents that can interact with their environment and other users.

4. Jupiter (JUP): Jupiter is a leading DEX aggregator on Solana, with the highest TVL on that network. As retail traders increasingly enter the crypto market through Solana, and speculative activity around Solana-based memecoins and AI agent tokens intensifies, we believe Jupiter is well-positioned to capitalize on this growing market.

5. Jito (JTO): Jito is a liquidity protocol on Solana. Jito has seen a significant increase in adoption over the past year and has one of the best financial positions in the crypto space, generating over $550 million in fee revenue in 2024.

6. Grass (GRASS): Grass is a decentralized data network that rewards users for sharing their unused internet bandwidth through a Chrome extension. This bandwidth is used to crawl online data, which is then sold to AI companies and developers to train machine learning models, effectively conducting web data crawling while compensating users.

Note: The shaded area represents new tokens to be added in the upcoming quarter (Q1 2025). "*" denotes assets in related sectors not included in the Crypto Sectors index. Source: Artemis, Grayscale Investments. Data as of December 20, 2024, for reference only. Assets may change. Grayscale and its affiliates and clients may hold positions in the digital assets discussed herein. All Top 20 assets have high price volatility and should be considered high-risk assets.

In addition to the new themes mentioned above, Grayscale remains bullish on themes from previous quarters, such as Ethereum scaling solutions, tokenization, and decentralized physical infrastructure (DePIN). These themes are still reflected through the return of some protocols to the Top 20, such as Optimism, Chainlink, and Helium.

This quarter, we have removed Celo from the Top 20. Grayscale Research continues to be positive on this project and believes it remains an important part of the crypto ecosystem. However, the revised Top 20 list may offer more attractive risk-adjusted returns in the coming quarter.

Investing in crypto asset classes involves risks, some of which are unique to the crypto asset class, including smart contract vulnerabilities and regulatory uncertainty. Additionally, all assets in the Top 20 have high volatility and should be considered high-risk, and therefore may not be suitable for all investors. Given the risks of the asset class, any investment in digital assets should be considered in the context of an investor's portfolio and their financial objectives.