Why Did Layer-1 Token Prices Collapse in 2025 Despite Strong Fundamentals?

Layer-1 (L1) blockchain token prices experienced a sharp decline throughout 2025, even as core on-chain metrics such as transaction volumes, active addresses, and total value locked in decentralized finance (DeFi) protocols remained stable or improved. Understanding this divergence is critical for interpreting crypto market dynamics amid evolving macroeconomic conditions and investor behavior.

What happened

Throughout 2025, the prices of Layer-1 tokens fell significantly despite steady or improving on-chain fundamentals. Data from AmbCrypto confirms that transaction volumes, active user addresses, and protocol usage on Layer-1 chains did not deteriorate alongside token prices. Similarly, DeFiLlama’s data shows total value locked (TVL) in DeFi protocols on these chains stayed near all-time highs, signaling sustained ecosystem engagement and developer activity.

Concurrently, macroeconomic conditions globally tightened as central banks raised interest rates to combat inflation, according to Bloomberg’s March 2025 reporting. This environment contributed to a broad reduction in risk appetite among investors, including those in the crypto space.

Institutional investors notably pulled back from crypto assets during the first half of 2025. Public filings with the U.S. Securities and Exchange Commission (SEC) for major crypto-focused funds such as the Grayscale Ethereum Trust and the Bitwise 10 Crypto Index Fund showed net outflows or reduced allocations to Layer-1 tokens in Q1 and Q2. This withdrawal of institutional capital was a key factor in weakening token prices.

Further, trading volumes for Layer-1 tokens on major crypto exchanges declined by approximately 30% year-over-year in early 2025, as reported by CoinGecko market data. This reduction in speculative trading activity suggests a shift in investor behavior away from momentum-driven strategies towards more cautious, risk-off positioning.

Multiple sources, including AmbCrypto and Bloomberg, interpret this divergence as primarily driven by changes in investor sentiment and behavior rather than deteriorating network fundamentals. The decoupling of price from on-chain usage indicates that external capital flows and macroeconomic factors exerted a stronger influence on market prices than protocol health or user activity.

Why this matters

The 2025 collapse in Layer-1 token prices despite robust fundamentals highlights a maturing crypto ecosystem increasingly sensitive to broader financial market dynamics. As AmbCrypto analysts note, this suggests that price volatility in Layer-1 tokens is becoming more detached from day-to-day network activity and more reflective of macroeconomic risk sentiment and institutional capital flows.

This divergence has structural implications for how Layer-1 projects and their stakeholders assess value and sustainability. Stable on-chain metrics alongside falling prices challenge traditional assumptions that network usage directly drives token valuation. Instead, external factors such as monetary policy and institutional demand appear to play a dominant role in price formation.

Moreover, the reduction in institutional exposure underscores the crypto market’s growing integration with traditional finance and its vulnerability to shifts in global financial conditions. The decline in speculative trading volume further indicates a potential recalibration of market participants’ risk tolerance.

From a policy perspective, this dynamic complicates regulatory and supervisory efforts. Regulators monitoring crypto market stability must consider that token prices may not reliably signal network health or user adoption, but rather broader market sentiment influenced by macroeconomic policies and institutional investment behavior.

What remains unclear

Despite these insights, several important questions remain unanswered by current reporting. The specific influence of off-chain factors such as regulatory developments or geopolitical events on investor risk perception of Layer-1 tokens in 2025 is not detailed in available sources.

It is also unclear how sustainable the stable on-chain fundamentals are if token prices remain depressed over a prolonged period. The potential impact on developer incentives, user engagement, and ecosystem innovation lacks conclusive data.

Additionally, the aggregated data does not clarify whether the price-fundamental divergence was uniform across all Layer-1 chains or if certain networks experienced different dynamics.

Further, the role of emerging Layer-2 solutions or cross-chain interoperability developments in possibly shifting investor interest away from Layer-1 tokens has not been addressed in the sources.

Finally, limitations exist due to the lack of detailed proprietary fund flow data beyond publicly filed disclosures, absence of crypto-specific sentiment indices, and no direct causal analysis linking specific macroeconomic or regulatory events to token price movements.

What to watch next

• Upcoming quarterly disclosures from crypto-focused ETFs and investment funds for updated data on institutional exposure to Layer-1 tokens.
• Central bank policy decisions and macroeconomic indicators that may influence investor risk appetite and capital flows into crypto markets.
• On-chain data releases tracking transaction volumes, active addresses, and TVL trends to monitor whether fundamentals remain stable or shift.
• Regulatory developments and official guidance that could affect investor perception and market confidence in Layer-1 protocols.
• Announcements or progress on Layer-2 scaling solutions and cross-chain interoperability projects that might alter investor preferences within the blockchain ecosystem.

The divergence between Layer-1 token prices and their underlying fundamentals in 2025 reveals evolving market dynamics shaped by macroeconomic tightening and institutional behavior. While on-chain activity remains resilient, token valuations appear increasingly influenced by external capital flows and risk sentiment. Addressing the open questions around regulatory impact, sustainability of fundamentals, and ecosystem shifts will be essential for understanding the future trajectory of Layer-1 networks and their markets.

Source: https://ambcrypto.com/l1-prices-collapsed-in-2025-but-fundamentals-held-firm-what-changed/. This article is based on verified research material available at the time of writing. Where information is limited or unavailable, this is stated explicitly.