Layer 1 tokens crumble as users flee and Bitcoin dominance grows in 2025

Source: Cryptonews Original Title: Layer 1 tokens crumble as users flee and Bitcoin dominance grows in 2025 Original Link: https://crypto.news/layer-1-tokens-crumble-as-users-flee-and-bitcoin-dominance-grows-in-2025/

Overview

Layer 1 blockchain tokens experienced significant depreciation in 2025, with major assets losing substantial value despite sustained developer activity. While Bitcoin maintained relative strength throughout the year, alternative Layer 1 tokens experienced sell-offs that exposed structural weaknesses in tokenomics and market positioning.

User Exodus and Market Divergence

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

Token Performance Trends

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 (MNT) managed a modest gain, attributed to concentrated supply control rather than fundamental strength.

Root Causes of Decline

Three primary forces drove the downturn:

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

Developer Activity Paradox

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.

This disconnect revealed market maturation: teams continued building through down cycles, but speculative capital no longer rewarded infrastructure without clear paths to revenue generation.

Revenue Generation Winners

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, as networks required 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. Generic infrastructure tokens will continue to trend toward irrelevance as capital concentrates in protocols demonstrating economic value rather than technological novelty alone.