5 Minutes
Market overview: Layer 1 tokens under pressure
In 2025 the crypto market saw a marked rotation of users and capital toward Bitcoin and top base-layer networks, while many Layer 1 and Layer 2 tokens suffered steep losses. An end-of-year analysis released by OAK Research highlights how overleveraged tokenomics, persistent unlock schedules and weak value-capture models left numerous alternative blockchains vulnerable as institutional and retail participants concentrated on revenue-generating protocols and the perceived safety of Bitcoin and Ethereum.
Key metrics: user decline and shifting activity
The report’s blockchain metrics point to a broad fall in on-chain engagement: Total Monthly Active Users across major chains dropped about 25.15%. Solana experienced the largest contraction, shedding nearly 94 million users — more than a 60% decline. By contrast, BNB Chain captured a significant flow of activity, nearly tripling its user base by onboarding participants leaving other ecosystems.
Layer 2 divergence and TVL changes
Layer 2 networks displayed mixed results. Base posted the strongest growth in Total Value Locked (TVL), leveraging Coinbase’s distribution reach and on-ramp advantages. Optimism, meanwhile, saw TVL decline sharply as capital migrated to competing rollups. Other Layer 2s including Polygon, Arbitrum, and zkSync Era ended the year with material token price contractions despite ongoing technical improvements.
What drove the sell-off?
The research identifies three principal drivers behind the collapse in many Layer 1 and Layer 2 token prices:
- Overleveraged token economics: aggressive early allocations and continuous unlock schedules created predictable sell pressure from insiders and early backers.
- Poor value capture: tokens that failed to tie real economic demand to on-chain usage lacked sustainable buy-side support.
- Institutional preference: larger investors gravitated to Bitcoin and Ethereum for liquidity, regulatory clarity, and revenue-bearing infrastructure.
These forces combined to amplify downward momentum for smaller-cap chains and generic infrastructure tokens which could not demonstrate a clear path to revenue.
Developer activity vs. token prices: a disconnect
Despite widespread price declines, developer activity held up in several ecosystems. Data from Electric Capital — cited in the OAK Research analysis — shows the EVM-compatible stack retained the largest developer pool, with thousands of contributors and a sizeable number of full-time teams. Bitcoin also posted the strongest two-year growth in full-time developers among major chains, and Solana’s developer count grew over the same period.
This divergence between technical progress and market valuation signals maturation: speculative capital is no longer sufficient to reward projects that don’t demonstrate economic utility or clear revenue models. Protocols continued building through the downcycle, but token markets increasingly prize sustainable fee generation and stable demand.
Revenue winners: stablecoins and derivatives
The year underscored that protocol revenue matters. Stablecoin issuers and derivatives platforms dominated on-chain income. Issuers such as Tether and Circle generated the bulk of protocol revenue, while derivatives venues produced meaningful, fee-based earnings. These models translated to stronger balance sheets and greater resilience compared with undifferentiated Layer 1s and Layer 2s.
The fate of generic infrastructure tokens
Blockchains that offer no clear advantage on speed, cost, or security faced consolidation risk. The report warns that many infrastructure tokens will trend toward irrelevance unless they can carve out defensible economic moats — for example by capturing fees through stablecoin rails, derivatives, or other revenue-bearing services.
Outlook for 2026: consolidation and selective stabilization
Looking ahead, analysts expect further consolidation. High inflation schedules, limited demand for governance rights, and the concentration of value capture in Bitcoin, Ethereum and a handful of utility-first protocols suggest more value will flow to base layers. Protocols that generate reliable revenue may stabilize, but even they will be exposed to market volatility and ongoing unlock pressure from early investors.
Survival for many Layer 1 tokens depends on leadership from major platforms, renewed institutional adoption, and tangible improvements in economic design. Without those factors, the market is likely to favor tokens that deliver measurable economic utility over projects promoted primarily for technical novelty.
What this means for investors and builders
For investors, 2025 reinforced the importance of assessing tokenomics, revenue models, and supply schedules — not just technical roadmaps. Builders should prioritize economic alignment between network usage and token demand, pursue fee-bearing products, and communicate clear paths to sustainable revenue. As capital concentrates in protocols that demonstrate economic value, projects that can prove durable income generation and user retention stand a better chance of long-term relevance.
Source: crypto
Comments
Armin
I've seen this: token unlocks tank on launch, users bail fast. Devs keep coding tho revenue probs will decide who survives, or not
coinpilot
Is this even true? Institutional rush to BTC/Eth I get, but blaming unlocks only? feels like they're skipping UX, liquidity nuances and user incentives…
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