Layer 1 blockchain tokens have long been regarded as foundational assets underpinning decentralized ecosystems, often attracting investor interest due to their perceived intrinsic value and network effect potential. However, recent market data challenge some of these assumptions, particularly around user growth and token value dynamics. The term “Layer 1 tokens” refers to native tokens associated with base layer blockchain protocols such as Ethereum, Solana, and BNB Chain. These tokens typically have governance functions and may provide staking incentives. Yet, the expectation that Layer 1 tokens naturally accrue value alongside ecosystem expansion does not always hold true.

In fact, 2025 marked a significant moment of reckoning for many undifferentiated Layer 1 tokens, as user growth stalled and economic activity failed to broadly translate into token appreciation. This underlines the importance of understanding the interplay between on-chain user activity, tokenomics, and revenue models when analyzing the health and sustainability of blockchain networks.

How user redistribution and on-chain metrics revealed shifts in Layer 1 token landscapes

Throughout 2025, on-chain data showed a notable contraction in Monthly Active Users (MAUs) across major Layer 1 blockchains, with an overall decline of approximately 25%. The report by OAK Research highlights that Solana experienced the steepest drop, losing over 60% of its users, equivalent to nearly 94 million accounts becoming inactive or moving off-chain. Conversely, BNB Chain saw near tripling of its user base, indicating divergent ecosystem growth patterns.

This user redistribution suggests that the narrative of universal Layer 1 token growth is more nuanced, with capital and usage migrating between platforms rather than expanding uniformly. Additionally, Layer 2 networks exhibited varied trajectories: while some, like Base, experienced increases in total value locked (TVL), others such as Optimism saw contractions in capital inflows. These observations indicate that token price movements and market sentiment are closely linked to demonstrable on-chain activity and economic value generation.

Moreover, revenue streams concentrated heavily in stablecoin issuance and derivatives protocols, rather than across the broader Layer 1 token landscape. For example, Tether and Circle combined accounted for the majority of revenue among top protocols, underlining the increasing role of stablecoins as economic anchors in the crypto market. Developer engagement remained relatively steady, particularly within EVM-compatible ecosystems, suggesting that protocol development continues despite short-term price volatility.

Official perspectives emphasize structural challenges and tokenomics in Layer 1 declines

According to public information from OAK Research and supporting entities like Electric Capital, the downward pressure on many Layer 1 tokens stems from systemic issues within tokenomics and value capture mechanisms. Continuous token unlock schedules and overleveraging dilute scarcity, leading to excess supply that markets struggle to absorb.

The absence of direct correlation between network usage and token demand was highlighted as a critical factor. Tokens without embedded value-capture design—such as transaction fees or staking rewards linked to ecosystem utility—face consistent selling pressure despite ongoing development activity. Institutional investors too show a marked preference for established assets like Bitcoin and Ethereum, increasing funding disparities in smaller-cap Layer 1 tokens.

Official statements from several Layer 1 projects reaffirm commitment to refining protocol economics and improving competitive differentiators, including scalability, transaction speed, and security enhancements. The community and developer teams are reportedly focusing on measures to stem token inflation and introduce sustainable revenue streams as outlined in technical roadmaps.

Regulatory environment and economic structures influencing Layer 1 token performance

Layer 1 token dynamics cannot be divorced from broader regulatory and financial factors. The market’s concentration around Bitcoin and Ethereum aligns with institutional frameworks that favor assets showing regulatory maturity and clearer compliance pathways. Regulatory clarity in key jurisdictions has improved but has not necessarily translated into broad capital inflows for smaller or less differentiated Layer 1 projects.

Furthermore, structural conditions such as inflationary token release schedules and the lack of established value capture disincentivize long-term holding. This influences liquidity and trading volume, making token prices vulnerable to market cycles and early investor unlock events. Discussions within social and industry platforms often revolve around the need for enhanced governance models and diversified revenue strategies to sustain ecosystem viability.

Market responses and potential implications for Layer 1 tokens in the near term

Price movements for major Layer 1 tokens throughout 2025 have largely reflected the underlying economic realities rather than speculative impulses. Trading volumes concentrated around tokens with clearer value propositions, while many others experienced sustained declines. On-chain activity metrics confirm that transaction counts and active wallet usage are no longer sufficient to drive token appreciation without corresponding revenue capture mechanisms.

System-level responses have been limited to protocol upgrades and incentive adjustments rather than market interventions. Some Layer 2 solutions with stronger integration to centralized exchanges, like Base, have benefited from inflows, underscoring the importance of access and user onboarding channels. However, persistent challenges such as inflationary supply and lack of governance demand continue to weigh on infrastructure tokens.

Potential areas of impact include increased consolidation within Layer 1 ecosystems and a sharper focus on projects offering distinct technological or economic advantages. Variables worth monitoring include institutional adoption levels, regulatory developments, and innovations in token utility that align usage with demand in a transparent manner.

---