Layer 1 Blockchain Competition and Network Effects: Identifying the Most Defensible and Scalable Protocols

The Layer 1 (L1) blockchain landscape in 2025 is a battleground of innovation, where scalability, governance, and use-case adoption define the winners. As institutional and retail investors seek protocols with defensible moats and sustainable growth, the competition has crystallized into a few key players. This article dissects the technical and economic strengths of leading L1s, identifying those best positioned to dominate the next phase of blockchain adoption.

Scalability: The New Performance Benchmark

Scalability remains the primary differentiator. Ethereum’s transition to Ethereum 2.0 has improved its throughput to ~45,000 transactions per second (TPS) via sharding and proof-of-stake (PoS), though gas fees during peak demand remain a hurdle [1]. Solana, by contrast, leverages its Proof of History (PoH) consensus to achieve 65,000 TPS with sub-second finality, making it a preferred platform for high-frequency applications like decentralized trading and AI agent development [2]. Hyperliquid and Monad are pushing boundaries further: Hyperliquid’s HyperBFT consensus enables 100,000 orders per second, while Monad’s parallel execution targets 10,000 TPS with EVM compatibility [3].

Sui and Aptos, though less mature, demonstrate the potential of sharding and parallel execution, achieving up to 125,000 TPS. However, their ecosystem traction lags behind established players [3]. For investors, the key metric is not just raw throughput but sustainable scalability—a balance between performance, decentralization, and security.

Governance: From Centralized Control to Community-Driven Models

Governance structures are evolving to reflect the complexity of modern blockchain ecosystems. Ethereum’s upgrades, including Ethereum 2.0, are driven by a hybrid model of core developers and community proposals, though execution timelines remain unpredictable [1]. Polkadot’s token-holder voting system allows direct governance, enabling rapid protocol adjustments but risking centralization if large stakeholders dominate [4].

Innovative models like Berachain’s Proof of Liquidity (PoL) are gaining attention. By incentivizing validators and liquidity providers to collaborate, PoL enhances network efficiency while aligning economic incentives [3]. Similarly, Avalanche’s subnet architecture allows custom governance rules for niche use cases, fostering institutional adoption [1]. For defensible protocols, governance must prioritize adaptability without compromising decentralization.

Use-Case Traction: From DeFi to Real-World Assets

Real-world use cases are the ultimate validation of a blockchain’s utility. Ethereum dominates in stablecoins and DeFi, with over $120 billion in total value locked (TVL) as of 2025 [1]. Solana’s ecosystem is surging in AI agent development, driven by its low fees and recurring revenue models for developers [2]. Meanwhile, the tokenization of real-world assets (RWAs) has emerged as a $24 billion market, with platforms like Avalanche and BNB Chain leading in infrastructure for tokenized real estate, commodities, and securities [6].

Network Effects: The Flywheel of Value

Network effects are the invisible force amplifying the value of leading L1s. Solana’s fee-burning mechanism creates a deflationary flywheel: higher usage increases demand for SOL, driving token value [5]. Ethereum’s dominance in developer tools and dApps ensures a self-reinforcing ecosystem, while BNB Chain’s integration with Binance’s exchange and wallet infrastructure provides a captive user base [1].

The most defensible protocols are those where network effects compound across scalability, governance, and use cases. For example, Ethereum’s transition to PoS has reduced energy consumption by 99.95%, attracting environmentally conscious investors [1]. Solana’s focus on AI and high-throughput applications positions it to capture the next wave of Web3 innovation.

Conclusion: The Investment Thesis

In 2025, the most compelling L1 investments are those that combine technical innovation with robust governance and real-world adoption. Ethereum remains the safest bet for its ecosystem depth and institutional backing. Solana and Avalanche offer high-growth potential in niche markets like AI and RWA tokenization. For risk-tolerant investors, projects like Hyperliquid and Monad represent the cutting edge of scalability, though their long-term viability depends on ecosystem maturity.

As the blockchain space matures, the winners will be those that balance performance with decentralization, adaptability with security, and utility with sustainability. The next decade will belong to the protocols that can scale without sacrificing these principles.

Source:
[1] Top 10: Layer 1 Blockchain Networks [https://fintechmagazine.com/articles/top-10-layer-1-blockchain-networks]
[2] Layer 1: blockchains to follow in 2025 [https://oakresearch.io/en/analyses/fundamentals/layer-1-blockchains-to-follow-2025]
[3] Mapping the Layer-1 Landscape: Benchmarking Blockchain Projects Across Key Themes [https://medium.com/bcgontech/mapping-the-layer-1-landscape-benchmarking-blockchain-projects-across-key-themes-18fd71a7e946]
[4] Comparative Analysis of Blockchain Systems [https://arxiv.org/html/2505.08652v1]
[5] Solana in 2025 ‑ Speed, Ecosystem Growth, Tokenomics [https://www.cryptoeq.io/articles/solana-2025-overview]
[6] Real-World Assets in Onchain Finance Report - RedStone blog [https://blog.redstone.finance/2025/06/26/real-world-assets-in-onchain-finance-report/]