Grayscale Utilities and Services Crypto Sector Summary

Research Team
Last Update 11/03/2023

Examples provided for illustrative purposes. Allocations are subject to change.

The Grayscale Utilities and Services Crypto Sector represents the “picks and shovels'' for developers building in the crypto ecosystem. This sector enhances the capabilities of other decentralized applications (“dApps”), providing services to either scale or connect other applications.

The majority of applications in this sector perform one of the following functions:

(i) Tie crypto applications to real world assets and data through oracles;

(ii) Increase usability of assets through liquid staking solutions;

(iii) Aggregate physical, data, and computation related services for consumers through decentralized networks;

Oracles are third-party services that connect decentralized applications with real-world data via price feeds. Prior to the advent of oracles in 2017, crypto was essentially siloed. The creation of Chainlink shifted this paradigm. Real world-data from oracles can encompass a wide range of information: stock prices, geolocation and weather data, event outcomes (like sports scores or election results). In allowing dApps to seamlessly incorporate data from activity throughout the internet, oracles exponentially expand the use cases of crypto.

Figure 1 and 2 Source: FTSE Russell, Grayscale Investment. Data as of October 24th, 2023. Allocations are subject to change.

The Grayscale Utility and Services Crypto Sector also plays a significant role in staking, where token holders earn rewards in return for locking up tokens to help secure a network. Liquid Staking Derivatives (“LSDs”) are protocols that enable individuals to stake their assets and support a network’s security while also being able to hold, use, and trade a derivative of those assets. In doing so, LSDs increase ecosystem liquidity. LSDs also enable smaller holders to pool their resources, lowering the barrier to participating in staking and contributing to network security.

In addition to staking, this sector plays a pivotal role in offering decentralized alternatives to services that have traditionally been monopolized by tech giants. In crypto, web services connect individuals seeking various services with independent providers of these services. Traditionally, capital requirements have led to market dominance by large corporate entities such as AWS for cloud computing or Google Cloud for data storage. This gets expensive, as market concentration can lead to restricted competition and growth in service fees. In crypto, however, tokens bootstrap independent service providers, which breaks down the barrier of capital requirements. This, in turn, allows for greater competition and pricing based on network supply and demand. Examples include data storage (Filecoin), Internet of Things (Helium) and compute power (Render).

Currently, the largest subsector is Web Services (38%), while the second largest is Oracles (28%), and third, Enterprise Applications (13%). With seven subsectors, the Grayscale Utilities and Services Crypto Sector is arguably the most diverse of the five Grayscale Crypto Sectors. It’s also the most fragmented, as the top seven assets by market cap as of October 24th 2023 account for only 49% of the sector market cap, the smallest proportion for any sector. Constituents of this sector complement other sectors by enhancing the capabilities of their applications. Because of this, many may look to the Utilities and Services sector as a proxy for the overall growth of the crypto industry.

Examples provided for illustrative purposes only.


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