Layer 1 Tokens Crumble as Users Flee and Bitcoin Dominance Grows in 2025

Source: CryptoNewsNet Original Title: Layer 1 tokens crumble as users flee and Bitcoin dominance grows in 2025 Original Link:

Summary

• Layer 1 tokens saw steep price and user losses in 2025, while Bitcoin held relative strength and BNB Chain nearly tripled users as others bled activity.
• Overleveraged tokenomics, weak value capture, and institutional preference for BTC and ETH drove sustained sell pressure on alternative L1 and L2 tokens.
• Stablecoin issuers and derivatives platforms dominated revenue, while generic infrastructure tokens faced consolidation risk and a trend toward irrelevance.

Market Divergence

Layer 1 blockchain tokens experienced significant depreciation in 2025, with major assets losing substantial value despite sustained developer activity, according to an end-of-year report from OAK Research released this week.

While Bitcoin maintained relative strength throughout the year, alternative Layer 1 tokens experienced sell-offs that exposed structural weaknesses in tokenomics and market positioning. The findings reveal a shift from speculation to fundamental value creation, with the market responding negatively to protocols unable to demonstrate economic activity.

Total Monthly Active Users declined 25.15% across major chains. Solana recorded the steepest decline, losing nearly 94 million users, representing a drop of more than 60%, while BNB Chain nearly tripled its user base by capturing participants from other platforms.

Layer 2 Performance

Layer 2 networks experienced similar divergence. Base demonstrated the strongest growth in Total Value Locked (TVL), solidifying its position through distribution advantages. Optimism saw TVL contract significantly as capital rotated toward competitors.

The majority of major Layer 1 tokens finished the year with losses, while some newer entrants saw extreme declines. Layer 2 tokens experienced similar performance despite technical progress. Optimism and zkSync Era posted severe declines, while Polygon and Arbitrum also fell substantially. Only Mantle managed a modest gain, attributed to concentrated supply control rather than fundamental strength.

Root Causes

The report identified three primary forces behind the decline:

1. Overleveraged tokenomics with continuous unlock schedules
2. Lack of credible value-capture mechanisms linking network usage to token demand
3. Institutional preference for Bitcoin and Ethereum over smaller-cap alternatives

Despite price declines, developer activity remained robust across select ecosystems. The EVM stack maintained the largest developer base, with thousands of contributors including many full-time developers. Bitcoin posted the strongest two-year growth in full-time developers among major ecosystems. Solana and the broader SVM stack also grew substantially over two years, demonstrating sustained technical development despite token performance.

The disconnect between developer activity and token prices revealed market maturation. Teams continued building through down cycles, but speculative capital no longer rewarded infrastructure without clear paths to revenue generation.

Revenue Winners and Losers

Stablecoin issuers dominated revenue generation, accounting for the vast majority of income among top protocols. Tether and Circle combined generated significant annual revenue, while derivatives platforms added meaningful fee-based income through sustainable models. Generic Layer 1s and Layer 2s lacking differentiation could not compete, with networks requiring improvements in speed, cost, or security to justify independent existence.

2026 Outlook

Infrastructure tokens face continued headwinds despite regulatory clarity in key markets. The combination of high inflation schedules, insufficient demand for governance rights, and concentration of value capture in base layers suggests further consolidation ahead.

Protocols that generate meaningful revenue may stabilize, but remain subject to broader market volatility and persistent unlock pressure from early investors. Survival for existing Layer 1 tokens depends on leadership from major platforms and renewed institutional adoption, with generic infrastructure tokens continuing to trend toward irrelevance as capital concentrates in protocols demonstrating economic value rather than technological novelty alone.