The blockchain space is absolutely packed with layer-1 protocols. Every few months, another team announces they’ve cracked the scalability trilemma, raised massive funding, and they’re ready to compete with Ethereum and Solana. Most will fade into obscurity within a year or two. The ones that survive long-term almost always get the economics right.
For those new to the space looking to buy crypto, MoonPay offers an accessible entry point. But understanding layer-1 economics is crucial regardless of where you’re starting.
Launching a new layer-1 isn’t just about technical innovation anymore. The economic model, the incentive structures, the token distribution mechanics, all of this determines whether a chain gains traction or becomes another abandoned ghost town blockchain. Let’s break down what actually goes into designing these economic systems and why so many projects get it wrong.
What Actually Is a Layer-1 Blockchain?
Quick primer for anyone not living and breathing crypto: a layer-1 blockchain is a base network that processes and finalizes transactions on its own chain. Ethereum is a layer-1. Bitcoin is a layer-1. Solana, Avalanche, Cardano, all layer-1s.
They’re called “layer-1” because other protocols can build on top of them. Those would be layer-2s (like Arbitrum or Optimism on Ethereum). The base chain handles security, consensus, and final settlement. Everything else builds upward from there.
The Tokenomics Puzzle: Balancing Multiple Interests
Here’s where things get complicated fast. When you’re designing the economics for a new chain, you’re trying to satisfy completely different groups with competing interests. Validators want high staking rewards. Users want low transaction fees. Early investors want token price appreciation. The founding team needs funding to keep building.
Get the balance wrong and the whole thing falls apart. Too much inflation to pay validators? Token price crashes and nobody wants to hold it. Fees too high? Users leave for cheaper chains. Team allocation too large? Community screams about centralization and dumps their tokens.
Projects like Somnia Network and other recent launches have had to think through these tradeoffs carefully in an increasingly competitive market. The days of launching with a half-baked economic model and figuring it out later are pretty much over. The market’s gotten too sophisticated for that.
Initial Token Distribution: Who Gets What?
One of the first and most scrutinized decisions is how tokens get distributed at launch. This single choice sets the tone for the entire project and can make or break community trust before the chain even goes live.
Common allocation buckets include team and advisors (usually 15-25%), early investors (20-30%), public sale participants (5-15%), ecosystem development fund (20-30%), and community incentives or airdrops (10-20%). These percentages vary wildly depending on how the project was funded and its goals.
Vesting schedules matter just as much as the percentages themselves. If the team and early investors can dump all their tokens immediately after launch, that’s a massive red flag. Smart projects lock up these allocations with multi-year vesting, often with cliff periods where nothing unlocks for the first 6-12 months.
The public vs. private sale dynamic has shifted dramatically over the past few years. Early projects did huge public token sales where anyone could participate. Now most fundraising happens privately with VCs and institutional investors, leaving retail participants feeling shut out. Some newer projects are swinging back toward more equitable distribution through airdrops and community-focused launches.
Incentivizing Validators and Security
Validators are the backbone of any proof-of-stake chain. They process transactions, maintain consensus, and secure the network against attacks. If your economic model doesn’t give them good reasons to participate honestly, your chain won’t be secure no matter how clever the technology is.
Most chains pay validators through staking rewards, basically minting new tokens as compensation for their work. The tricky part is setting these rewards high enough to attract serious validators while not inflating the token supply so much that it destroys value for everyone holding the token.
Early stage chains often start with higher rewards to bootstrap security quickly, then gradually reduce emissions over time as the network matures and transaction fees can pick up more of the load. Getting this curve right takes serious modeling and often some trial and error.
User Acquisition: The Chicken and Egg Problem
Every new chain faces the same brutal reality. Developers won’t build apps without users. Users won’t show up without apps. You need both simultaneously, which is basically impossible.
This is where incentive programs come in. Chains throw money at the problem through developer grants, liquidity mining rewards, and user incentive campaigns. Some of it works. A lot of it just attracts mercenary capital that leaves the second rewards dry up.
There’s also the practical friction of actually getting people onto your chain in the first place. Users need to buy crypto through onramps, bridge assets from other chains, set up new wallets, and figure out how your ecosystem works. Every step in that process loses potential users. The chains that reduce this friction through better tooling and partnerships tend to retain users better than those that don’t.
Transaction fee models play a huge role here too. Some chains go for ultra-low fees to attract users. Others keep fees higher to ensure validator profitability and prevent spam. There’s no perfect answer, just different tradeoffs depending on what kind of usage you’re optimizing for.
Inflation vs. Sustainability: The Long Game
Here’s the uncomfortable truth about most layer-1 tokenomics. They’re designed to work for 12-24 months, not for decades. High initial rewards bring in validators and users quickly, but create unsustainable inflation that eventually collapses the token price.
Smart projects plan emission schedules that gradually decrease over time, paired with mechanisms that remove tokens from circulation. Transaction fee burns, staking lock-ups, governance participation requirements, these all help counteract inflation. But you need actual network usage generating fees for any of this to work long-term.
The graveyard of failed layer-1s is full of projects with great technology but terrible economic sustainability. They ran hot early, attracted lots of attention, then slowly bled out as inflation outpaced actual value creation.
Real-World Case Studies: What Works and What Doesn’t
Looking at what’s actually worked in practice, a few patterns emerge. Chains that allocated meaningful resources to developer grants and ecosystem growth (like Avalanche’s Rush program or Optimism’s RetroPGF) saw real application development. Those that just paid for liquidity mining got temporary TVL spikes that vanished immediately.
Projects that were transparent about tokenomics from day one built more trust than those that changed rules midstream or had opaque allocation details. Community-focused distribution through airdrops to active users rather than just token holders also tended to create stickier user bases.
The biggest mistakes? Massive team allocations without long vesting. Promising fixed supply then changing it later. Setting validator rewards so high that inflation spiraled out of control. Launching without thinking through how transaction fees would eventually sustain the network.
The Path Forward for New Launches
Any layer-1 launching in 2025 faces a much tougher environment than projects from 2020 or 2021. Users have seen dozens of chains come and go. They’re more skeptical of promises and more focused on actual utility and sustainability.
The tokenomics designs that seem to be gaining traction now prioritize long-term alignment over short-term hype. Lower initial inflation, meaningful vesting schedules, transparent allocation, and clear paths to fee-based sustainability rather than perpetual token emissions.
There’s also more creativity around non-financial incentives. Governance rights, access to specific features, reputation systems within the ecosystem. Not everything needs to be about token price.
Getting the Economics Right
Launching a new layer-1 in today’s market requires getting a thousand details right simultaneously. The technology needs to work, obviously. But the economic design might be even more important for long-term success.
No tokenomic model is perfect. Every choice involves tradeoffs between competing interests and goals. The key is aligning incentives so that the actions that benefit individual participants also strengthen the network as a whole. When those incentives point in different directions, the economics break down eventually no matter how good everything else looks.
