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The Decline of Layer 1 Tokens: Insights from OAK Research

Key Findings from OAK Research

According to a recent report from OAK Research, the year 2025 proved to be highly challenging for Layer 1 (L1) and Layer 2 (L2) tokens. Despite persistent developer activity, these assets suffered steep drawdowns and a significant decline in their market value. While Bitcoin (BTC) managed to maintain relative stability, alternative L1 tokens faced dramatic losses which underscored the weaknesses in their tokenomics and value capture strategies.

Declining User Adoption

One striking point in the report is the noticeable decline in Monthly Active Users (MAUs), which dropped by an alarming 25.15% across major blockchain networks. Solana (SOL) represented a significant portion of this decline, losing nearly 94 million users—over 60% of its user base. Conversely, BNB Chain experienced growth, nearly tripling its user base during the same period.

Divergence in Layer 2 Networks

Layer 2 networks exhibited a similar trend, with Base emerging as a leader in total value locked (TVL). This success can be largely attributed to Coinbase’s extensive distribution network. However, not all L2 tokens fared well; Optimism, for example, saw its TVL contract as investors shifted their capital toward more competitive options.

Struggles of Major Tokens

The major Layer 1 tokens ended the year on a negative note, often reflecting broader market sentiment. Even the technically innovative Layer 2 solutions like Optimism and zkSync Era posted significant declines, with only Mantle showing a modest gain due to its controlled supply. The report identifies three specific factors contributing to these declines:

1. Overleveraged tokenomics that featured continuous unlock schedules.
2. A lack of mechanisms to link network usage with token demand.
3. A clear institutional preference for dominant cryptocurrencies like Bitcoin and Ethereum over smaller-cap alternatives.

Continued Developer Activity

Interestingly, despite these challenges, developer activity remains robust within certain ecosystems. Data from Electric Capital indicates that the Ethereum Virtual Machine (EVM) stack continues to house the largest community of developers, with thousands actively contributing. Similarly, Bitcoin experienced the most significant growth in full-time developers compared to its competitors, while Solana’s ecosystem has also expanded considerably over the past two years.

Market Maturation and Revenue Concerns

The stark disconnect between the levels of developer activity and token prices points to a wider trend of market maturation. Development teams are continuing to innovate despite facing down cycles; however, capital investments are increasingly cautious and require clear paths to revenue generation. Protocols that lack established revenue streams run a heightened risk of failing in a competitive landscape.

Revenue generation has primarily been the domain of stablecoin issuers, with Tether and Circle leading this charge. These companies are significantly increasing their annual revenue, while derivatives platforms are also tapping into fee-based income through sustainable business models.

Infrastructure Challenges Ahead

Competition Among Layer 1 and Layer 2 Networks

The report highlights that generic Layer 1 and Layer 2 networks lacking distinct features are struggling to maintain competitiveness. To survive, these networks need substantial improvements in speed, cost, or security, emphasizing the critical need for differentiation to justify their existence amid growing competition.

Regulatory Clarity and Market Pressure

As we head into 2026, infrastructure tokens are predicted to remain under pressure, despite increased regulatory clarity in key markets. Challenges such as inflated token supply schedules, insufficient demand for governance rights, and concentrated value capture within foundational layers are likely to lead to further consolidation in the market.

The report suggests that while some protocols may stabilize by generating meaningful revenue, they will still be vulnerable to broader market volatility and early investor unlock pressures. The survival of existing Layer 1 tokens may heavily depend on effective leadership from major platforms and renewed institutional adoption.

How AI legalese decoder Can Help

In times of uncertainty and complexity within the blockchain and cryptocurrency space, tools like AI legalese decoder can play a pivotal role in demystifying complex legal documents and agreements. This AI-powered tool simplifies intricate legal language into plain English, making it more accessible for stakeholders, developers, and investors. By breaking down legalese, it ensures that all parties have a clear understanding of the regulations, contracts, and agreements that could impact their assets and investments.

For instance, with the shifting landscape that OAK Research describes, stakeholders can use AI legalese decoder to review terms of service, compliance documents, or partnership agreements quickly. This understanding can equip users with the information necessary to make informed decisions, navigate potential pitfalls in the regulatory landscape, and ultimately contribute to the development of projects that align more closely with market needs and user expectations.

In summary, the findings of OAK Research underline the need for continued innovation, clarity in economics, and the importance of informed decision-making. Tools like AI legalese decoder not only foster transparency but also empower stakeholders to position themselves strategically amidst ongoing challenges in the blockchain realm.

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