Layer-1 Bloodbath: SOL and AVAX Plunge Over 65% in 2025 Market Shakeout

The crypto winter just got a lot colder for the Layer-1 heavyweights. A new report details a brutal 2025 for foundational blockchain tokens, with major players like Solana (SOL) and Avalanche (AVAX) taking a staggering hit—each dropping more than 65% from their peaks.

The Great Unwinding

It wasn't just a bad week—it was a trend. The data paints a clear picture of a sector-wide correction, moving beyond the usual altcoin volatility into something more systemic. The narrative of "Ethereum killers" faced its sternest test yet as user activity and developer momentum failed to justify previous valuations.

Beyond the Top Two

While SOL and AVAX headlines capture attention, the contagion wasn't isolated. The report suggests the sell-off rippled across the broader L1 landscape, pressuring other networks that had ridden the wave of scalability hype. The downturn calls into question the "build it and they will come" investment thesis that dominated the last cycle.

A Reality Check for Narratives

Market analysts point to a perfect storm: fading speculative fervor, a shift in capital toward more tangible yields, and perhaps a dose of long-overdue realism about adoption timelines. It's the classic finance story—what goes up on narrative must eventually be supported by fundamentals, or it comes crashing down. As one cynical trader put it, "Turns out 'disrupting finance' is harder than disrupting a portfolio."

The dramatic reset leaves the industry at a crossroads, forcing a hard look at utility versus speculation. For builders, the pressure is now on to deliver; for the market, the era of easy L1 gains appears to be over.

User Reallocation Masks Market Stagnation

The year witnessed massive user redistribution rather than overall growth, with totaldecliningacross major chains, according to the report’s blockchain metrics analysis.

Solana suffered the steepest decline, losing nearly 94 million users (a drop of more than 60%), while BNB Chain almost tripled its user base by capturing fleeing participants.

Layer 2 networks experienced similar divergence. Base demonstrated the strongest growth, with TVL rising 37.2% to $4.41 billion, according to the report, solidifying its position through Coinbase’s distribution advantage.

Meanwhile, Optimism saw TVL contract 63%, dropping from nearly $2 billion to $786 million as capital rotated toward more aggressive competitors.

Token Performance Reflects Brutal Reality

Price action told an unforgiving story. Among major LAYER 1 tokens monitored since January, only two finished positive:

• BNB gained 18.2%.
• TRX rose 9.8%.

The remainder suffered catastrophic losses, with solana dropping 35.9% and newer entrants like TON and AVAX falling over 67%.

Layer 2 tokens fared even worse despite technical progress.

The report documents that Optimism and zkSync Era both posted declines exceeding 84%, while Polygon and Arbitrum fell by more than 73%.

Only Mantle managed a modest 8.3% gain, attributed to concentrated supply control rather than fundamental strength.

The report identifies several converging forces behind the decline. They can be summed up into three main reasons:

• Overleveraged tokenomics with continuous unlock schedules.
• Lack of credible value-capture mechanisms linking network usage to token demand.
• Institutional preference for Bitcoin and Ethereum over smaller-cap alternatives.

Developer Activity Diverges From Price

Despite price carnage, developer activity remained robust across select ecosystems, according to data from Electric Capital cited in the report.

The EVM Stack maintained the largest developer base, with 17,473 total contributors (updated), including 5,405 full-time developers, representing over 32% of activity.

Bitcoin posted the strongest two-year growth in full-time developers among major ecosystems, rising 90.5% to 1,003 contributors.

Solana and the broader SVM Stack grew 75.8% over two years to 4,578 full-time developers, demonstrating sustained technical ambition despite brutal token performance.

Overall, the developer ecosystem is growing, but the disconnect between their activity and token prices revealed what the report terms as “.”

Teams continued building through down cycles, but speculative capital no longer rewarded infrastructure without clear paths to revenue generation.

Revenue Meta Emerges as Criterion

The fundamental lesson of 2025 became inescapable, according to the report’s economic analysis. The report asserts that protocols without credible revenue streams are at risk of extinction.

The industry pivoted decisively toward the “,” where actual cash flows mattered more than narrative.

Stablecoin issuers dominated revenue generation, accounting for 76% of income among top protocols.

Tether and Circle combined generated $9.8 billion annually, while derivatives platforms like Hyperliquid added $1.1 billion through sustainable fee-based models.

The report also pointed out a harsh truth that generic Layer 1s and Layer 2s lacking differentiation could not compete.

Networks required 10x improvements in speed, cost, or security to justify independent existence.

Outlook Remains Challenging

Looking toward 2026, infrastructure tokens face continued headwinds despite regulatory clarity in key markets, the report concludes.

The combination of high inflation schedules, insufficient demand for governance rights, and concentration of value capture in base layers suggests further consolidation ahead.

The overall sentiment in the altcoin market heading into 2026 remains cautious, particularly as they’re experiencing a steep decline never seen before.

Protocols that generate meaningful revenue may stabilize, but they remain subject to Bitcoin’s volatility and persistent unlock pressure from early investors.

For existing Layer 1 tokens, the report asserts that survival depends on ethereum and Solana, and that renewed institutional adoption might restore hope.

Without leadership from market majors, generic infrastructure tokens will continue to trend toward irrelevance as capital concentrates in protocols that show economic value rather than technological novelty alone.