Why L1 Fundamentals Are Shifting: The Stablecoin Economic Model That's Reshaping Layer1 Strategy

The Layer1 sector is undergoing a fundamental repricing, and the reason might surprise you. What was once considered a valuation premium is now disappearing as markets finally digest a shift that’s been brewing for years: the economics of blockchain infrastructure are no longer about the protocol itself, but about the applications built on top of it.

The End of “Fat Protocols,” The Rise of App-Driven Demand

For years, investors bet on L1s as standalone value engines. The assumption was simple—build it, and money flows in. But the market is now recognizing what builders have known: the real wealth generation happens in applications, not infrastructure. This transition from “fat protocols” to “fat applications” has been underway, yet pricing models haven’t caught up until now.

The consequence? Homogeneous L1 infrastructure is losing its appeal. When most Layer1 and Layer2 networks offer similar technical capabilities, they’re competing on something less sustainable—brand loyalty and speculation. Major public chains now face mounting pressure to prove they can generate tangible, recurring economic returns, not just transaction volume.

Stablecoins: The Unlikely Revenue Engine for L1s

Here’s where the narrative shifts dramatically. Over $30 billion in USDC and USDT liquidity is currently deployed across alternative Layer1 and Layer2 ecosystems, a concentration that’s generating more than $1 billion annually for Circle and Tether. That’s not noise—that’s real economic value.

But the story gets more interesting. The applications that genuinely drive stablecoin adoption—payment protocols, lending platforms, derivatives exchanges—are collectively capturing approximately $800 million in annual fee income. This reveals a hidden layer in L1 economics: stablecoins aren’t just utilities; they’re the connective tissue between L1s and user-facing applications.

The Strategic Realization: Internalizing Stablecoin Economics

Many Layer1 networks have begun recognizing this dynamic. Instead of remaining passive infrastructure providers who subsidize stablecoin issuers like Circle and Tether, leading protocols are repositioning themselves to capture a portion of stablecoin-related economic activity. This represents a fundamental shift from outsourcing financial rails to internalizing them—a move that could reshape L1 competitive advantages.

The Layer1 that can credibly control stablecoin economics and application-level revenue streams may find the valuation premium wasn’t lost—it was simply redirected toward protocols that crack this code.