Q1 mainly focuses on themes such as US industry regulation, AI technology and AI agents, and the growth of the Solana ecosystem.
The cryptocurrency market saw a significant increase in Q4 2024, with the FTSE/Grayscale Crypto Sectors index showing strong market performance. The increase largely reflects the market's positive reaction to the results of the US election. Competition in the smart contract platform space remains fierce. The leading player, Ethereum, lagged in price performance behind the second-largest competitor, Solana, as investors increasingly turned their attention to other Layer 1 networks like Sui and The Open Network (TON).
Grayscale Research updated its list of the Top 20 tokens. This list represents a diverse array of assets in the cryptocurrency industry that may have significant potential in the upcoming quarter. Newly added assets for Q1 2025 include HYPE, ENA, VIRTUAL, JUP, JTO, and GRASS. All assets in the Top 20 list exhibit high price volatility and should be considered high risk.
The Grayscale Crypto Sectors index provides a comprehensive framework for understanding the range of investable digital assets and their relationship with 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.
Cryptocurrency valuations soared in Q4 2024, primarily due to the market's positive reaction to the results of the US election. According to the Cryptocurrency Sector Market Index (CSMI), the industry's total market cap increased from $1 trillion to $3 trillion this quarter. The following Figure 2 compares the total market cap of cryptocurrencies with various traditional public and private market asset classes. For example, the current market cap of the digital asset industry is roughly equivalent to that of the global inflation-linked bond market—more than twice that of the US high-yield bond market but still far below that of the global hedge fund industry or the Japanese stock market.
Due to increased valuations, many new tokens met the inclusion criteria of the Grayscale Crypto Sectors framework (which has a minimum market cap requirement of $100 million for most tokens). In this quarterly rebalancing, Grayscale added 63 new assets to the index series, bringing the total to 283 tokens. The consumer and cultural sectors saw the most new tokens added, reflecting the continued strong returns of meme coins and the appreciation of various assets related to gaming and social media. By market cap, the largest new asset in the Crypto Sectors is Mantle, an Ethereum Layer 2 protocol that has now met the minimum liquidity requirements.
The smart contract platform sector may be the most competitive sub-market in the digital asset industry. While 2024 is a milestone year for the sector's leader, Ethereum—having received approval for US spot exchange-traded products (ETPs) and undergone significant upgrades—ETH's performance has lagged behind some competitors like Solana, which is the second-largest asset in this sector by market cap. Investors are also turning their attention to other L1 networks, including high-performance blockchains like Sui and the blockchain TON integrated with the Telegram platform.
When creating infrastructure for application developers, architects of smart contract blockchains face various design choices. These design choices impact the three factors that comprise the 'blockchain trilemma': network scalability, network security, and network decentralization. For instance, 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.
Regardless of the advantages and disadvantages of design choices and networks, smart contract platforms derive their value from the network fee revenues they generate. Although other metrics such as total TVL are also important, fee revenue can be seen as the primary driver of token value accumulation in this market segment. There is a statistical relationship between fee revenue and market cap for smart contract platforms. The stronger the network's ability to generate fee revenue, the greater its capacity to pass value back to the network in the form of token burns or staking rewards.
This quarter, the Top 20 token list compiled by Grayscale Research includes some smart contract platform tokens: ETH, SOL, SUI, and OP.
Each quarter, the Grayscale Research team analyzes hundreds of digital assets to inform the rebalancing process of the FTSE/Grayscale Crypto Sectors series indexes. Following this process, Grayscale Research generates a list of the top 20 assets within the Crypto Sectors. The top 20 represent a diverse array of assets across the Crypto Sectors, which may have significant potential in the upcoming quarter. The selection criteria for the list combine various factors, including network growth/adoption, upcoming catalysts, sustainability of fundamentals, token valuations, token supply inflation, and potential tail risks.
In Q1 2025, Grayscale will focus on tokens that at least involve 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; ongoing breakthroughs in decentralized AI technology and the use of AI agents on the blockchain; and the growth of the Solana ecosystem. Based on these themes, the following six assets were added to the Top 20 list for Q1 2025:

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.
Ethena (ENA): The Ethena protocol has evolved into a new type of stablecoin, USDe, primarily backed by hedge positions in Bitcoin and Ethereum. Specifically, the protocol holds long positions in Bitcoin and Ether and short positions in perpetual futures contracts of the same assets. The staked version of the token provides yield through the difference between spot and futures prices.
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.
Jupiter (JUP): Jupiter is the leading DEX aggregator on Solana, boasting the highest TVL in the network. As retail traders increasingly enter the cryptocurrency market via Solana, and speculation around Solana-based memecoins and AI agent tokens intensifies, we believe Jupiter is fully capable of capitalizing on this growing market.
Jito (JTO): Jito is a liquidity protocol on Solana. Jito has seen a significant increase in adoption over the past year and has the best financials in the cryptocurrency sector, with fee revenues exceeding $550 million in 2024.
Grass (GRASS): Grass is a decentralized data network that rewards users for sharing unused internet bandwidth via 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, effectively scraping web data while compensating users.

In addition to the new themes mentioned above, Grayscale remains optimistic about themes from previous quarters, such as Ethereum scaling solutions, tokenization, and decentralized physical infrastructure (DePIN). These themes continue to be reflected in 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 optimistic about these projects, believing they remain important components of the crypto ecosystem. However, the revised Top 20 list may offer more attractive risk-adjusted returns in the upcoming quarter.
Investing in cryptocurrency asset classes involves risks, some of which are unique to cryptocurrency assets, including smart contract vulnerabilities and regulatory uncertainty. Additionally, all assets in the Top 20 exhibit high volatility and should be considered high risk, and thus may not be suitable for all investors. Given the risks associated with the asset class, any investment in digital assets should be considered in the context of an investment portfolio and the investor's financial goals.

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