Grayscale Q1 2025 Selection: 20 Tokens with High Growth Potential

Original title: Grayscale ResearchInsights: Crypto Sectors in Q1 2025

Source: Grayscale Research

Compiled by: Golem, Odaily Planet Daily

Summarize:

· The crypto market surged in Q4 2024, with the FTSE/Grayscale Crypto Sectors index showing strong market performance. The gains largely reflected the market's positive reaction to the U.S. election results.

· Competition in the field of smart contract platforms remains fierce. The price performance of Ethereum, the leader in the field, has lagged Solana, the second-largest competitor by market capitalization, and investors are increasingly paying attention to other Layer 1 networks such as Sui and The Open Network (TON).

· Grayscale Research updated the Top 20 token list. This list represents a diverse range of assets in the cryptocurrency industry that may have high potential in the coming quarter. New assets added in Q1 of 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 provide a comprehensive framework for understanding the range of investable digital assets and their relationship to the underlying technology. Based on this framework, and in partnership with FTSE Russell, Grayscale developed the FTSE Grayscale Crypto Sectors index series to measure and monitor crypto assets (Figure 1). Grayscale Research includes the index in its analysis of digital asset markets.

Chart 1: Positive Returns for Grayscale Crypto Sectors Index in 2024

Cryptocurrency valuations surged in the fourth quarter of 2024, largely due to the market’s positive reaction to the U.S. election results. According to the Cryptocurrency Industry Market Index (CSMI), the total industry market capitalization increased from $1 trillion to $3 trillion during the quarter. Figure 2 below compares total cryptocurrency market capitalization to various traditional public and private market asset classes. For example, the market capitalization of the digital asset industry today is roughly equivalent to that of the global inflation-linked bond market—more than double the U.S. high-yield bond market, but still well below the global hedge fund industry or the Japanese stock market.

Figure 2: Cryptocurrency market capitalization increased by $1 trillion in the fourth quarter of 2024

Due to increased valuations, many new tokens meet the criteria for inclusion in the Grayscale Crypto Sectors framework (which requires a minimum market capitalization of $100 million for most tokens). With this quarterly rebalancing, Grayscale has added 63 new assets to the index series, now including a total of 283 tokens. The consumer and cultural sectors added the most new tokens, reflecting continued strong returns from meme coins and appreciation in various assets related to gaming and social media.

The largest new asset in Crypto Sectors by market capitalization is Mantle, an Ethereum Layer 2 protocol that now meets minimum liquidity requirements (more details on Grayscale Index inclusion criteria can be found here ).

Smart contract platform competition

The smart contract platform space is perhaps the most competitive segment in the digital asset industry. While 2024 is shaping up to be a landmark year for Ethereum, the leader in the space – with Ethereum receiving U.S. spot exchange-traded product (ETP) approval and major upgrades – ETH is underperforming Certain competitors, such as Solana, which is the second-largest asset in the space by market capitalization. Investors have also turned their attention to other L1 networks, including high-performance blockchains such as Sui and TON, a blockchain integrated with the Telegram platform.

Architects of smart contract blockchains face various design choices when creating infrastructure for application developers. These design choices affect the three factors that make up the “blockchain impossible triangle”: network scalability, network security, and network decentralization. For example, prioritizing scalability often manifests itself in 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 result in varying block times, transaction throughput, and average transaction fees (Figure 3).

Chart 3: Smart contract platforms have different technical characteristics

Regardless of design choices and network strengths and weaknesses, a smart contract platform derives its value through the network fee revenue it generates. Although other metrics such as total TVL are also important, fee revenue can be seen as the main driver of token value accumulation 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 income and market value. The greater the network’s ability to generate fee revenue, the greater the network’s ability to transfer value to the network in the form of token burns or staking rewards. This quarter, Grayscale Research’s Top 20 token list includes a number of smart contract platform tokens: ETH, SOL, SUI, and OP.

Chart 4: All smart contract platforms compete for fee revenue

Grayscale Research Top 20 Token List

Each quarter, the Grayscale Research team analyzes hundreds of digital assets to inform the rebalancing process of the FTSE/Grayscale Crypto Sectors Series Index. Following this process, Grayscale Research generates a list of the top 20 assets within the Crypto Sectors space. The top 20 represents a diverse set of assets across Crypto Sectors, and these assets may have high potential in the coming quarter (Figure 4). The list is screened using a combination of factors including network growth/adoption, upcoming catalysts, fundamental sustainability, token valuation, token supply inflation and potential tail risks.

In Q1 of 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 such as decentralized finance (DeFi) and staking;

· Continuous breakthroughs in decentralized AI technology and the use of AI agents in blockchain;

· Growth of the Solana ecosystem.

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

1. Hyperliquid (HYPE): Hyperliquid is an L1 blockchain designed to support on-chain financial applications. Its primary application is a decentralized exchange (DEX) for perpetual futures, with a fully on-chain order book.

2. Ethena (ENA): The Ethena protocol has evolved into a new stablecoin, USDe, primarily secured by hedging positions in Bitcoin and Ethereum. Specifically, the protocol holds long positions in Bitcoin and Ethereum and short positions in perpetual futures contracts on the same assets. The staking version of the token provides yields on the difference 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 perform tasks autonomously. 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 the leading DEX aggregator on Solana and has the highest TVL in the network. As retail traders increasingly enter the cryptocurrency market through Solana, and speculation around Solana-based memecoins and AI proxy 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 significant growth in adoption over the past year and has the best financial position in cryptocurrency, with over $550 million in fee revenue in 2024.

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

Figure 5: Top 20 new additions include DeFi applications, AI agents, and Solana ecosystem

NOTE: The shading represents new tokens added in the upcoming quarter (Q1 2025). "*" indicates assets in related fields that are not included in the Crypto Sectors Index. Source: Artemis, Grayscale Investments. The data is as of December 20, 2024 and is for reference only. Assets are subject to change. Assets are subject to change. Grayscale, its affiliates and clients may have 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 some protocols returning to the Top 20, such as Optimism, Chainlink, and Helium.

This quarter, we removed Celo from the Top 20. Grayscale Research continues to be bullish on these projects and believes they remain an important part of the crypto ecosystem. However, the revised Top 20 list may provide more attractive venture capital returns in the coming quarter.

Investing in crypto asset classes involves risks, some of which are unique to crypto asset classes, including smart contract vulnerabilities and regulatory uncertainty. Additionally, all assets in the Top 20 are highly volatile and should be considered high risk, and therefore are not suitable for all investors. Given the risks of the asset class, any investment in digital assets should be considered within the context of an investment portfolio and take into account the investor’s financial objectives.