Even in a red quarter, AI and DeFi kept producing winners
PLUS: U.S. retirement rule could open the door to crypto in 401(k)s
Hi Investor đ
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In todayâs newsletter:
đĄ Even in a red quarter, AI and DeFi kept producing winners
đŁ U.S. retirement rule could open the door to crypto in 401(k)s
đ Ethereum is becoming the default stablecoin settlement layer
Letâs dive in!
đĄ Insight
Even in a red quarter, AI and DeFi kept producing winners
Crypto was ugly in Q1.
Every major crypto sector finished the quarter in the red.
But under the surface, the market sent a much more useful signal: capital kept flowing toward AI and financial infrastructure.
That is the real takeaway from Grayscaleâs latest Crypto Sectors report.
While most tokens fell, a smaller group of names still outperformed on a volatility-adjusted basis â and the Top 20 list was heavily concentrated in AI, DeFi, and tokenization-related infrastructure.
For investors, that matters more than the headline decline.
Because when the market gets selective, it usually tells you where the next leadership group is forming.
The big idea
Grayscaleâs Q1 2026 data shows two things can be true at once:
the broader market can be weak
the strongest narratives can still separate from the pack
Thatâs exactly what happened this quarter.
According to Grayscale, the strongest relative performers were mostly tied to:
AI infrastructure
onchain financial rails
tokenization plumbing
DeFi protocols with real usage
Translation: this was not a meme-led leaderboard.
It was a utility-led leaderboard.
The Top 20: where the strength showed up
Grayscaleâs Top 20 index-eligible tokens by volatility-adjusted 90-day returns included names like:
AI
Kite (KITE)
Bittensor (TAO)
Akash Network (AKT)
Render (RENDER)
GRASS
Financials / DeFi
Hyperliquid (HYPE)
Just (JST)
Morpho (MORPHO)
Sky (SKY)
CoW Protocol (COW)
Tokenization / infrastructure
LayerZero (ZRO)
Canton Network (CC)
TRON (TRX)
Quant (QNT)
There were also a few standouts from other corners of the market, but the pattern is obvious:
AI + DeFi dominated the winners list.
Why this matters
A lot of investors still think the best gains come from chasing whatever is loudest on X.
But this quarter suggests something different.
The market rewarded projects with exposure to:
AI agent infrastructure
decentralized trading
onchain lending
cross-chain messaging
tokenized real-world asset rails
24/7 financial market infrastructure
Thatâs a much more mature signal.
When liquidity gets tighter and macro gets messy, capital tends to stop rewarding âstory-onlyâ tokens and starts rewarding projects tied to real demand.
That appears to be what happened in Q1.
The standout themes
1) AI is still one of the strongest narratives in crypto
Grayscale highlighted multiple AI-related outperformers.
Kite (KITE) stood out as an AI-focused Layer 1 built for agents, wallets, identity, and payments.
Bittensor (TAO) continued to show strength as one of the most credible decentralized AI ecosystems.
Akash, Render, and GRASS also made the list, reinforcing the same message:
the market still wants exposure to the AI stack.
Not every AI token will win, obviously.
But as a category, AI remains one of the clearest places where crypto can attach itself to a much larger secular trend.
2) DeFi is quietly getting stronger again
This report was also bullish for financial infrastructure.
Hyperliquid (HYPE) was one of the clearest examples. It benefited from growing demand for 24/7 onchain trading and expanded beyond crypto into synthetic exposure to traditional assets.
Morpho (MORPHO) and Sky (SKY) show that lending is still a live category â especially when protocols offer strong product-market fit and real capital efficiency.
This is important because DeFi leadership often returns before the crowd notices.
When trading, borrowing, and onchain capital formation start re-accelerating, the market usually rewards the rails first.
3) Tokenization is moving from narrative to infrastructure buildout
This may be the most important long-term takeaway.
Grayscale noted that tokenized assets are up sharply year over year, stablecoin market cap is growing, and stablecoin volume is surging.
Thatâs the backdrop.
Then look at some of the winners:
Canton Network (CC)
LayerZero (ZRO)
TRON (TRX)
Quant (QNT)
These arenât âfunâ retail narratives.
Theyâre the kind of projects that benefit when institutions, issuers, and financial platforms move more assets onchain.
That makes them worth watching.
Our View
This report says the market is becoming more selective, not less bullish.
That is usually a healthy transition.
The easiest money in crypto often comes from spotting where fundamentals and narrative are converging before the crowd fully reprices it.
Right now, that convergence looks strongest in:
AI
DeFi market infrastructure
tokenization rails
That doesnât mean buy every token in those buckets.
It means these are the buckets where weâd spend the most research time.
đŁ Update
U.S. retirement rule could open the door to crypto in 401(k)s
A major U.S. policy shift may be coming for crypto.
The U.S. Department of Labor has proposed a rule that would make it easier for 401(k) retirement plans to include alternative assets like crypto, private equity, real estate, and private credit. The proposal is designed to give plan fiduciaries a clearer legal framework â and potentially a âsafe harborâ â when evaluating these investments.
Why this matters
401(k)s are massive. Reuters reported the proposal could affect roughly 721,000 plans, covering about 118 million workers and around $8.8 trillion in assets.
This does not mean trillions will suddenly flow into crypto. It means the legal and regulatory barrier to offering crypto exposure inside retirement plans may be getting lower. If finalized, even a tiny allocation from a small share of retirement plans could represent meaningful new long-term demand for bitcoin and other crypto-linked products.
đ Signal
Ethereum is becoming the default stablecoin settlement layer
Ethereum is now processing roughly $8 trillion in stablecoin transfer volume per quarter, according to Token Terminal data shared this week.
That matters because stablecoin transfer volume is one of the clearest signs of real onchain financial usage. It is not just speculation. It reflects actual dollar-denominated value moving across crypto rails. And when that number is compounding this fast, it tells you Ethereum is increasingly functioning like the base layer for internet money. This is an inference based on the scale and growth of the transfer data.
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