The Stablecoin L1 Trap and What Fantom Collapse Teaches Us
Fantom once peaked at $7.78B in TVL. Today it sits near $100M.
Avalanche hit $11B. Now: $2B.
Near reached $2B. Today: $300M.
These are not random failures. They reveal a recurring pattern.
The Bloodbath of L1s
Circle is exploring its own chain. Stripe spent $1.1B to acquire Bridge. PayPal is shopping for rails. But here is what they risk forgetting: chains rarely collapse because of technology. They collapse because of economics.
Every dying L1 followed the same playbook:
- Launch with token incentives
- Attract mercenary capital
- Celebrate vanity metrics
- Watch liquidity evaporate when rewards dry up
The outcome is inevitable: TVL charts that rise like rockets and fall like stones.
Why Stablecoin L1s Face a Bigger Risk
For stablecoin issuers, the trap is deeper.
If Circle forces USDC onto its own chain, it stops being money and becomes a loyalty token. USDC’s strength is neutrality. Break that, and Tether wins.
The math is simple. USDC’s $30B+ supply exists because it clears across Ethereum, Solana, Arbitrum, Base, and more. Force users onto one chain and circulation shrinks.
Even Stripe faces the same dilemma. Control the rails and lose the network effect, or stay open and wonder why you built a chain at all.
Technical Patterns in L1 Collapse
The failures of Fantom, Avalanche, and Near share technical-economic fingerprints:
- Incentive-driven liquidity: Rewards pull in mercenary capital that disappears when yields fall.
- Fragmented liquidity pools: Splitting across too many venues reduces usable depth.
- Shallow network effects: Without sticky use cases, liquidity leaves as quickly as it arrives.
- Overbuilt infrastructure: Chains optimized for throughput without solving distribution or demand.
Stablecoin L1s risk the same outcome. Tie issuance to one chain and you fragment liquidity, weaken network effects, and convert neutral money into captive flow.
Where the Real Value Lies
The winners will not be the ones laying more asphalt. They will be the ones building the GPS that tells money where to go.
The intelligence layer—routing liquidity across chains, balancing spreads, and adapting to real-time corridor conditions—creates more value than another blockchain ever will.
The real question is whether stablecoin issuers will learn from the 90 percent TVL collapses of Fantom, Avalanche, and Near, or repeat them.