Recent insights from QwQiao highlight a growing doubt surrounding Layer 1 (L1) blockchain tokens, which have traditionally held a central role in the cryptocurrency sector. The analysis points to a changing landscape, where attention is moving away from speculative L1 assets and toward the practical promise of application-layer advancements.
While foundational protocols like Bitcoin and Ethereum continue to provide essential security and decentralization, they are frequently criticized for ongoing issues with scalability and high transaction costs. Industry experts note that these challenges have prompted a reevaluation of where true value lies within the blockchain ecosystem.
Application-layer solutions—spanning decentralized finance (DeFi), non-fungible tokens (NFTs), and interoperability platforms—are increasingly recognized as the driving force behind broader adoption. These innovations are seen as more capable of delivering real-world benefits and attracting mainstream users.
Recent market events have exposed the vulnerabilities of L1 tokens. For instance, Hyperliquid's HYPE token experienced a dramatic 54% drop in a single day during the October 2025 downturn, despite the platform maintaining a substantial monthly trading volume of $330 billion. This sharp fluctuation underscores the speculative nature of many L1 assets, which often lack sustainable revenue models and rely heavily on market sentiment.
QwQiao's report, echoing the views of other analysts, points out that L1 tokens often struggle to justify their market value when their primary functions are limited to transaction processing and governance, without generating consistent income streams.
In contrast, projects operating at the application layer are gaining momentum by addressing tangible needs. A notable example is Grayscale's recent application for a Zcash (ZEC) ETF, reflecting a surge in institutional interest in privacy-focused digital assets. Zcash itself has seen its value soar by over 1,000% this year, fueled by demand for secure and confidential transactions.
These developments demonstrate how application-layer projects are fostering organic demand by offering practical features like enhanced privacy, interoperability across blockchains, and user-oriented financial services.
The critique of L1 tokens extends to their economic frameworks. Adaptive tokenomics—systems that dynamically adjust supply, emissions, and fee allocation—are emerging as a response to the inflexible models of many L1 protocols. Projects such as BASE are experimenting with advanced governance mechanisms, including machine learning and vote-escrowed tokens (veBASE), to better align incentives and promote sustainable ecosystem growth. This stands in stark contrast to traditional L1 models, which often focus on extracting short-term liquidity rather than building lasting value.
Looking forward, the expansion of application-layer solutions is expected to accelerate as blockchain infrastructure continues to evolve. The recent approval of Ripple's RLUSD stablecoin in Abu Dhabi and the rise of Layer 3 technologies—such as DeFi platforms and NFT marketplaces—highlight the sector's increasing vitality. Industry reports also point to growing institutional participation, with products like Grayscale's ZEC ETF signaling a shift toward crypto assets that offer practical utility.
As the blockchain industry navigates regulatory complexities and technical challenges, the gap between speculative L1 tokens and utility-focused application-layer projects is likely to widen. QwQiao's analysis serves as a timely reminder that lasting value in the crypto space depends on bridging the divide between robust infrastructure and solutions that meet real user needs.