February 2025 Public Chain Industry Analysis: Challenges and Innovations in Market Adjustment

In February 2025, the blockchain market experienced significant adjustments, posing challenges to various public chain networks. Although Bitcoin performed relatively steadily, further consolidating its dominant position, most chains, including Solana, Avalanche, and Ethereum, saw substantial declines. However, development activity in the public chain sector did not slow down as a result, with the launch of the Berachain mainnet, upgrades to Base infrastructure, and the rollout of Uniswap's Layer 2 solutions being highlights of the month.

Market Overview

The market experienced a significant correction in February: Bitcoin fell from $98,768 to $84,177, a decline of 14.8%; Ethereum saw an even larger drop, falling from $3,065 to $2,216, a decrease of 27.7%. In the last week of the month, concerns over security risks spread, further intensifying selling pressure.

This pullback follows the bullish market trend in January, but the market signals are complex, with investors oscillating between optimism and safety concerns. Market sentiment has deteriorated, and risk appetite has declined, particularly evident in more speculative areas. Globally, the North American market shows cautious optimism due to policy changes, while the Asia-Pacific market feels the impact of safety incidents more acutely.

Regulatory and Policy Trends

The U.S. government's cryptocurrency executive order focuses on self-custody and the development of stablecoins, providing the industry with rare policy clarity. However, a major security incident on February 21 resulted in a loss of $1.5 billion, setting a record for the largest single loss in cryptocurrency history, raising new security concerns, and quickly shifting market sentiment. Meanwhile, the SEC's stance has softened, pausing investigations into several well-known trading platforms and abandoning its appeal against the "dealer rule." The bipartisan GENIUS Act (the American Stablecoin Innovation and Establishment Act) further refines the regulatory framework for stablecoins, demonstrating a friendly trend in the U.S. regulatory environment.

Investor behavior reflects this turbulence. The speculative frenzy driven by tokens associated with specific political figures has quickly cooled due to related negative news, leading to a sharp drop in valuation and a significant contraction in trading volume. This shift suggests that the market is retreating from high-risk assets.

Development of Layer 1 Public Chains

Layer 1 public chains are generally under pressure, with a total market capitalization decline of 20.8% to $2.3 trillion. Bitcoin's dominance rose from 71.3% to 74.2%, while Ethereum's share decreased from 14.0% to 11.9%. The share of a well-known chain slightly increased to 3.7%, but Solana's share fell from 4.0% to 3.3% after a price drop of 36.3%.

Litecoin rose against the trend by 1.0% to $128.7, while Solana (-36.3%), Avalanche (-35.7%), and others underperformed.

The total value locked (TVL) in DeFi decreased by 20.0% to $82.9 billion, with Ethereum at $44.9 billion (down 21.7%) and Solana at $8.6 billion (down 34.1%).

Berachain has emerged rapidly, soaring to sixth place after the mainnet launch on February 6, with a TVL of $3.2 billion. The chain issued 80 million BERA tokens, adopting a "proof of liquidity" model — an innovative staking method that transforms liquidity into network security. Following large-scale financing in 2024, this month's airdrop and governance incentives have energized market enthusiasm. This new approach could redefine how public chains balance growth and stability, making Berachain a project worth watching.

The speculative frenzy surrounding Solana has clearly cooled down. High-profile failures have damaged market confidence, leading to a significant decline in trading volumes across several decentralized exchanges. While such speculative assets are unlikely to disappear entirely and can be seen as digital collectibles, their peak frenzy may have passed, and traders are beginning to focus more on fundamentals rather than hype.

Bitcoin Layer 2 and Sidechains

The TVL of Bitcoin-related Layer 2 and sidechains has decreased by 24.5% from $2.7 billion to $2.1 billion. Core leads with a TVL of $460 million (a decline of 42.0%), followed by Bitlayer ($350 million) and BSquared ($320 million). BOB performed relatively well, only dropping 7.9% to $220 million.

Among medium-sized platforms, Merlin performed relatively stable, with TVL slightly decreasing by 9.3% to 150 million USD. Small platforms, on the other hand, face greater pressure, with several projects experiencing declines of over 25%.

Industry experts predict that as initial enthusiasm wanes, over two-thirds of existing Bitcoin Layer 2 projects could disappear within three years. The industry slump in February seems to corroborate this view, and consolidation may have already begun. Looking ahead, platforms that can prove actual value may be more durable than projects that rely solely on short-term hype.

Ethereum Layer 2 Development

Ethereum Layer 2 TVL decreased by 23.4% to $14 billion. Arbitrum maintains its lead with a TVL of $4.5 billion (down 33.4%), while a certain platform rises to second place with a TVL of $4.2 billion (down 10.6%), pushing Optimism ($2.1 billion) to third place. Polygon zkEVM surged by 104.1% to $300 million, becoming a rare highlight this month.

A well-known platform has launched several technical upgrades, including faster transaction confirmations, customized Layer 3 solutions, and smart wallet sub-accounts, aimed at enhancing user experience. Unichain's mainnet launched on February 16, having previously processed 95 million transactions on its testnet, positioning itself as a game changer in scalability performance, with several heavyweight institutions joining in support. Starknet's Nums application chain, as a Layer 3 gaming innovation, showcases the future potential of modular design.

Although it does not belong to the Ethereum ecosystem, Sonic EVM, as the first SVM chain expansion of Solana, attracted a lot of attention with its mainnet launch on Mobius on February 27. The project achieved a processing capacity of 10,000 TPS and brought in 47.6 million USD in funding for a certain DeFi platform in a short period of time. These initiatives indicate that Layer 2 projects are increasing their technical investments rather than just relying on marketing gimmicks.

Ethereum founder Vitalik Buterin commented on February 19, emphasizing that Ethereum needs to clearly define its position amid increasing competition. He advocated for Layer 2 to play a leading role in scalability and interoperability, noting that they have evolved from "advanced multi-signatures" into powerful networks. Buterin expressed concern over the tendency for excessive speculation within the ecosystem, urging a focus on real value rather than short-term hype.

Financing Situation

Financing activities have noticeably slowed down, with a total of 6 transactions completed in February, amounting to $32.4 million. Mango Network raised $13.5 million for its EVM-MoveVM hybrid chain, planning to launch in the first quarter of 2025. Fluent Labs secured $8 million in funding for developing a multi-virtual machine Layer 2 solution connecting Ethereum and Solana.

Despite the overall market being in a correction phase, innovative projects are still able to attract the attention of investors, especially those dedicated to solving cross-chain interoperability and performance improvements. This indicates that even during market downturns, promising technological innovations can still receive funding support.