Translation: Plain Language Blockchain
In Q4 2024, the crypto market performed strongly, as indicated by the FTSE/Grayscale Crypto Industry Index Series, with the market surge primarily driven by positive market reactions to the U.S. election results.
Competition remains fierce in the smart contract platform space. As the category leader, Ethereum's performance has lagged behind that of Solana, which ranks second in market capitalization. Investor interest in alternative Layer 1 networks, such as Sui and The Open Network (TON), continues to rise.
We have updated the list of the top 20 assets from Grayscale Research. This list covers a diversified portfolio of assets in the crypto industry that we believe have high potential in the upcoming quarter. New assets added this quarter include HYPE, ENA, VIRTUAL, JUP, JTO, and GRASS. It is important to note that all assets in the top 20 list exhibit high price volatility and are considered high-risk assets.
The Grayscale Crypto Industry Framework provides a comprehensive analytical tool for understanding the full scope of investable digital assets and their relationship with underlying technologies. Based on this framework and in collaboration with FTSE Russell, we developed the FTSE Grayscale Crypto Industry Index Series to measure and monitor the crypto asset class. Grayscale Research incorporates these crypto industry indices into its ongoing analysis of the digital asset market.
Figure 1: Our crypto industry index achieved positive returns in 2024
In Q4 2024, the valuations of crypto assets surged significantly, primarily due to the market's positive reaction to the U.S. election results. According to our comprehensive Crypto Industry Market Index (CSMI), the total market capitalization of the entire industry jumped from $1 trillion to $3 trillion this quarter. Figure 2 compares the total market capitalization of the crypto market with various traditional public and private market asset classes. For instance, the current market capitalization of the digital asset industry is roughly equivalent to that of the global inflation-linked bond market, more than twice that of the U.S. high-yield bond market, but still significantly lower than the market capitalization of the global hedge fund industry or the Japanese stock market.
Figure 2: The crypto market's total market capitalization increased by $1 trillion in Q4 2024
With the increase in valuations, many new tokens meet our inclusion criteria for the crypto industry framework (the minimum market capitalization requirement for most assets is $100 million). In this quarter's adjustment, we added 63 new assets to the index series, bringing the total to 283 tokens. The highest number of new tokens in the consumer and cultural crypto sector reflects the continued strong returns of memecoins and the appreciation of various assets related to gaming and social media. By market capitalization, the largest new asset in the crypto industry this quarter is Mantle, an Ethereum Layer 2 protocol that has now met our minimum liquidity requirement.
Competition among smart contract platforms
The crypto space of smart contract platforms may be one of the most competitive market segments in the digital assets industry. While 2024 is a milestone year for the category leader Ethereum—having received approval for spot exchange-traded products (ETPs) in the U.S. and completed a significant upgrade—its token Ether has underperformed compared to some competitors, including Solana, which ranks second in market capitalization in this category. Investors have also turned their attention to other Layer 1 networks, including high-performance blockchains like Sui and the blockchain TON integrated with the Telegram messaging platform.
When creating infrastructure for application developers, designers of smart contract blockchains face various design choices. These choices affect the three factors that constitute the "blockchain trilemma": network scalability, network security, and network decentralization. For example, prioritizing scalability often results in high transaction throughput and low fees (for instance, Solana), while prioritizing decentralization and network security may lead to lower throughput and higher fees (for example, Ethereum). These specific design choices lead to significant differences in block time, transaction throughput, and average transaction fees (see Figure 3).
Figure 3: Smart contract platforms with different technical characteristics
Regardless of design choices and the strengths and weaknesses of networks, one of the sources of value for smart contract platforms is their ability to generate network fee income. We have previously noted that fee income can be viewed as a major driver for the accumulation of token value in this market segment, although other metrics such as total value locked (TVL) also need to be considered (see The Value Struggle of Smart Contract Platforms). As shown in Figure 4, there is a statistical relationship between fee income and market capitalization for smart contract platforms. The stronger the ability of a network to generate fee income, the greater its ability to transfer value to the network in the form of token burn 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 income
Grayscale Research Top 20 List
Each quarter, the Grayscale Research team analyzes hundreds of digital assets to support the rebalancing process of the FTSE/Grayscale Crypto Industry Index Series. Based on this process, Grayscale Research releases the top 20 assets in the crypto industry. This list showcases a diversified portfolio covering multiple sectors within the crypto industry that we believe have high potential in the upcoming quarter (see Figure 4). Our methodology considers various factors, including network growth and adoption, potential catalysts, fundamental sustainability, token valuations, token supply inflation rates, and potential tail risks.
This quarter, we focused particularly on tokens related to the following three core market themes:
The U.S. election and its potential impact on industry regulation, especially in decentralized finance (DeFi) and staking;
Ongoing breakthroughs in decentralized AI technology and the application of blockchain in AI agents;
Growth of the Solana ecosystem.
Based on these themes, we have added the following six assets to the top 20 list for Q1 2025:
Hyperliquid (HYPE): Hyperliquid is a Layer 1 blockchain designed to support on-chain financial applications, primarily functioning as a decentralized perpetual futures exchange (DEX) equipped with a fully on-chain order book.
Ethena (ENA): The Ethena protocol has developed a new type of stablecoin, USDe, which is primarily backed by hedged positions in Bitcoin and Ethereum collateral. The protocol supports the stability of USDe by holding long positions in Bitcoin and Ethereum while maintaining short positions in perpetual futures contracts for these assets. Staked tokens provide yields through the price differential between spot and futures.
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 and simulate human decision-making. The platform supports the creation and co-ownership of tokenized AI agents, which can interact with their environment and other users.
Jupiter (JUP): Jupiter is the preferred DEX aggregator on Solana, with the highest total value locked (TVL) in that network. As more retail investors enter the crypto market through Solana, and as speculation around Solana-based memecoins and AI agent 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 seen rapid growth over the past year and ranks among the top performers in the entire crypto space, with fee income exceeding $550 million in 2024.
Grass (GRASS): Grass is a decentralized data network that rewards users for sharing their unused internet bandwidth via a Chrome extension. This bandwidth is used for online data scraping, which is then sold to AI companies and developers for training machine learning models, effectively enabling data scraping while compensating users.
Figure 5: The updated top 20 list covers DeFi applications, AI agents, and the Solana ecosystem
Note: The shaded areas indicate newly added assets, applicable to the upcoming Q1 2025. *Assets marked with an asterisk are not included in the corresponding sectors of the crypto industry index. Source: Artemis, Grayscale Investments.
Note, this data is as of December 20, 2024. For illustrative purposes only, assets may be adjusted at any time. Grayscale and its affiliates and clients may hold the digital assets mentioned in this article. All assets in our top 20 list exhibit high price volatility and should be considered high-risk assets.
In addition to the new themes mentioned above, we remain optimistic about the themes proposed in previous quarters, such as Ethereum scaling solutions, tokenization, and decentralized physical infrastructure (DePIN). These themes are reflected through protocols returning to the top 20 list, such as Optimism, Chainlink, and Helium.
This quarter, we removed the following assets from the top 20: TON, Near, Stacks, Maker (Sky), UMA Protocol, and Celo. Grayscale Research still considers these projects valuable, 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 upcoming quarter.
Investing in the crypto asset class carries risks, some of which are unique to crypto assets, including smart contract vulnerabilities and regulatory uncertainties. Additionally, all assets in our top 20 list exhibit high volatility and should be considered high-risk assets, making them unsuitable for all investors. Given the risks associated with this asset class, any investment in digital assets should be done in conjunction with the overall context of the portfolio and consider the financial objectives of the investor.
