Layer 1 blockchain tokens’ recent performance challenges reflect broader market realities beyond mere price fluctuations
Layer 1 blockchain tokens have frequently been viewed as foundational assets within the crypto ecosystem, often perceived as primary beneficiaries of network growth and adoption. Such expectations have been reinforced by historic narratives of rapid user acquisition and protocol innovation driving valuation gains. However, recent data from 2025 indicates a more nuanced landscape where user growth has stalled and revenue streams have become increasingly concentrated, particularly within stablecoin issuers and derivatives platforms. This shift highlights underlying structural issues in the tokenomics and economic incentives associated with Layer 1 protocols.
The evolution of user engagement and revenue distribution among Layer 1 and Layer 2 networks has revealed key divergences in 2025
The end-of-year report from OAK Research documents that across major blockchain ecosystems, Monthly Active Users (MAUs) declined by approximately 25%, with particular erosion seen in certain Layer 1 chains. Solana (SOL), for instance, experienced a steep user base reduction of over 60%, losing nearly 94 million users, while Binance Smart Chain (BNB Chain) demonstrated user growth by nearly tripling its active count. This dynamic underscores that user redistribution within the ecosystem rather than net growth dominated the landscape.
Similarly, Layer 2 networks showed differentiated performance. Base protocol registered growth in Total Value Locked (TVL), benefitting from Coinbase’s extensive user network, whereas Optimism’s TVL contracted, as capital migrated toward competing protocols. Other prominent Layer 2 chains such as Polygon and Arbitrum experienced notable declines, despite ongoing technical enhancements.
OAK Research attributes these disparities to several factors, including continuous token unlock schedules that increase circulating supply, insufficient value-capture mechanisms that directly link network utility to token demand, and a pronounced institutional preference for leading assets like Bitcoin and Ethereum over smaller-cap offerings.
Official communications highlight the tension between sustained developer activity and declining token valuations within Layer 1 ecosystems
Data from Electric Capital cited in the report illustrates a disconnect between developer engagement and token price performance. Despite significant price contractions, developer activity remained resilient, particularly within EVM-compatible (Ethereum Virtual Machine) environments, which maintained the largest contributor base globally. Bitcoin also recorded the strongest growth in full-time developers over a two-year span, alongside notable increases in Solana and the SVM (Solana Virtual Machine) stack.
According to official statements from various project teams documented in the report, this dichotomy reflects a maturing market where capital allocation no longer favors infrastructure projects lacking clear revenue pathways. Instead, there is a shift towards protocols with demonstrable economic models and sustainable income streams. For example, Mantle’s modest token appreciation is linked to its concentrated supply dynamics, which mitigate downward pressures.
The broader regulatory and economic framework continues to influence Layer 1 token performance and ecosystem consolidation trends
Regulatory clarity achieved in certain key markets during 2025 did not alleviate inherent structural challenges facing Layer 1 protocols. As highlighted in the report, inflationary tokenomic designs with prolonged unlock schedules exert continual downward pressure on prices. Additionally, the insufficient demand for governance tokens, which traditionally confer rights within network decision-making, compounded the challenges of value capture amid growing competition.
Mainstream industry discourse on social platforms and professional forums frequently points to the need for Layer 1 networks to differentiate themselves through demonstrable improvements in speed, transaction costs, or security assurances. Absent these factors, generic L1 and L2 protocols face increasing consolidation risks as capital concentrates within dominant platforms. Meanwhile, revenue generation remains heavily skewed toward stablecoin issuers such as Tether and Circle, which collectively account for a majority of revenue among top blockchain protocols, and derivatives platforms with fee-based models.
Short-term market responses exhibit clear trends in trading volumes, token flows, and ecosystem development divergences for Layer 1 assets
Throughout 2025, the general devaluation of Layer 1 tokens correlated with diminishing trading volumes and on-chain activity related to speculative transfers. Notably, Bitcoin’s relative stability contrasted with pronounced volatility and sell pressure in smaller Layer 1 tokens. Additional on-chain data shows that fund flows increasingly favored stablecoins and top-tier tokens with established revenue mechanisms, while others faced unlock-related supply shocks.
Platform-level responses remained mostly operational without significant interruption, although selective networks reported varying congestion levels linked to changing user activity. There were no widely reported security incidents, but audit scrutiny persisted as a focal point for protocol integrity. From a longer-term perspective, potential areas worth monitoring include institutional engagement shifts, tokenomics adjustments, and Layer 1 versus Layer 2 interoperability developments.
