Layer 1 Tokens Decline as Bitcoin Dominates in 2025

In 2025, Layer 1 and Layer 2 tokens experienced significant declines as users shifted to more stable platforms like Bitcoin, Ethereum, and BNB Chain. Despite ongoing developer activity within these ecosystems, the findings from OAK Research indicate a bleak outlook for many tokens as the market emphasizes fundamental value creation.

Key Takeaways

Layer 1 tokens faced substantial losses in 2025 as users migrated to Bitcoin and other established protocols.
Monthly Active Users dropped by 25.15% across major blockchains, with Solana witnessing the largest decline.
Developer activity remains strong, yet there’s a disconnect between this activity and token prices, reflecting market maturation.
Protocols struggling with user engagement and revenue generation may face further challenges in attracting investment, while stablecoins dominate in revenue generation.

Layer 1 and Layer 2 tokens lose users as Bitcoin holds firm in 2025

Challenging Times for Altcoins

While Bitcoin showed relative stability throughout the year, many alternative Layer 1 tokens faced significant sell-offs, revealing deep-rooted issues in their tokenomics and positioning in the market. The shift from speculative trading to a focus on creating fundamental value led to negative responses from the market towards networks unable to show real economic activity.

Recent analytics highlighted a 25.15% drop in Monthly Active Users across key blockchain networks. Solana was the hardest hit, losing almost 94 million users, resulting in a staggering decline of over 60%. Conversely, BNB Chain saw a resurgence, nearly tripling its user base by attracting participants from competitor platforms.

Layer 2 Networks Struggle Too

Layer 2 networks faced similar challenges. Among them, Base showed the strongest growth in Total Value Locked (TVL), benefiting from its association with Coinbase's distribution strength. In contrast, Optimism experienced a notable contraction in TVL as funds flowed towards rival projects.

Most major Layer 1 tokens ended the year in negative territory, with newer projects witnessing extreme losses. Despite some technological advancements, Layer 2 tokens also bore the brunt of these trends. Both Optimism and zkSync Era recorded significant declines, while Polygon and Arbitrum were also affected. The only exception was Mantle Mantle , which posted minor gains due to supply control rather than inherent strength.

Factors Driving the Decline

The report identified three significant factors contributing to the decline in Layer 1 tokens:

Overleveraged tokenomics with continuous unlock schedules.
Lack of credible mechanisms to link network usage with token demand.
Institutional preference favoring Bitcoin and Ethereum over smaller alternatives.

Developer Activity Remains Steady

Despite the price declines observed, developer activity across various ecosystems continues to thrive, as indicated by data from Electric Capital. The Ethereum Virtual Machine (EVM) ecosystem still boasts the largest developer community, consisting of thousands of contributors, including numerous full-time developers. Bitcoin showcased the strongest growth of full-time developers over the past two years, while Solana and the SVM stack also made substantial gains, indicating ongoing technical development despite the underwhelming token performance.

Market Maturation and Future Outlook

The growing disconnect between developer engagement and token valuations reflects a matured market. Teams are actively building during market downturns, but speculative investments are no longer rewarding infrastructure lacking clear revenue generation strategies.

Stablecoin providers dominate revenue generation, compiling the majority of income among leading protocols. Tether and Circle have notably generated considerable annual revenue, while derivatives platforms have also gained significant income via sustainable fee-based models. Layer 1 and Layer 2 tokens lacking uniqueness are struggling to remain competitive, with the report suggesting that these networks need to enhance their speed, cost efficiency, or security to justify existence.

Looking forward to 2026, infrastructure tokens may continue to face challenges despite regulatory clarity in key markets. The presence of high inflation rates, inadequate demand for governance rights, and the concentration of value in base layers indicate possible further consolidation in the market.

Protocols that manage to generate meaningful revenues could find some stabilization, but will remain vulnerable to broader market fluctuations and persistent pressure from early investor unlocks. The analysis concluded that the survival of existing Layer 1 tokens hinges on support from major platforms and renewed interest from institutional investors, cautioning that generic infrastructure tokens may become increasingly irrelevant as investments shift towards projects showcasing genuine economic value rather than mere technological novelty.