Layer 1 tokens face reckoning as user growth stalls and revenues concentrate

Source: Cryptonews Original Title: Layer 1 tokens face reckoning as user growth stalls and revenues concentrate Original Link:

2025 Layer 1 Token Performance Decline

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

While Bitcoin (BTC) maintained relative stability throughout the year, alternative Layer 1 tokens posted steep losses that highlighted structural challenges in tokenomics and market positioning. The data revealed a shift in market focus from speculation to fundamental value creation, with protocols lacking demonstrable economic activity facing selling pressure.

User Redistribution and Market Divergence

The year saw substantial user redistribution rather than net growth, with total Monthly Active Users declining 25.15% across major chains. Solana (SOL) recorded the steepest decline, losing nearly 94 million users, representing a drop of more than 60%, while BNB Chain nearly tripled its user base.

Layer 2 networks showed similar divergence. Base posted the strongest growth in total value locked (TVL), benefiting from a major platform’s distribution network. Optimism saw TVL contract as capital moved toward competitors.

Most major Layer 1 tokens finished the year with losses, while Layer 2 tokens also declined despite technical advances. Optimism and zkSync Era posted severe declines, while Polygon and Arbitrum also fell substantially. Mantle recorded a modest gain, attributed to concentrated supply control.

Root Causes of Decline

The report identified three primary factors behind the decline:

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

Developer Activity Remains Resilient

Developer activity remained strong across select ecosystems despite price declines. The EVM stack maintained the largest developer base with thousands of contributors. Bitcoin posted the strongest two-year growth in full-time developers among major ecosystems, while Solana and the broader SVM stack also grew substantially over two years.

The disconnect between developer activity and token prices reflected market maturation. Development teams continued building through down cycles, but capital no longer flowed to infrastructure without clear revenue generation paths.

Revenue Concentration and Future Outlook

Protocols without revenue streams faced heightened risk. Stablecoin issuers dominated revenue generation, accounting for the majority of income among top protocols, while derivatives platforms added fee-based income through sustainable models.

Generic Layer 1 and Layer 2 networks lacking differentiation struggled to compete. Networks required substantial improvements in speed, cost, or security to justify independent existence.

Infrastructure tokens face continued pressure heading into 2026 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 generating meaningful revenue may stabilize but remain subject to broader market volatility and unlock pressure from early investors. Survival for existing Layer 1 tokens depends on leadership from major platforms and renewed institutional adoption.