Original author: David C, Bankless
Original text compiled by: Baishui, Golden Finance
After the Ethereum Dencun upgrade, most L2 fees dropped and everyone is thinking about what will happen next.
The scaling conversation has now quickly turned to the potential next step - Layer 3. L3, also known as Application Chain, provides an environment tailored to specific communities and use cases, such as enterprise blockchain applications or games.
Additionally, while Dencun has generally lowered fees, we havent quite overcome this challenge yet, and the gas prices of popular L2s like Base are still an eyesore for many - although were making progress.
Can L3 solve this problem?
How do we expand from here?
Examining the features supported by L3, the currently deployed L3s, and the frameworks available to launch them will provide more information to answer this question.
What does L3 offer?
Expanding from L2 to L3 allows for a more specialized ecosystem to be tailored to specific needs, potentially significantly expanding the reach of the blockchain market.
Successful L2 has established a brand for itself - i.e. Blast is the degen center, Base is the consumer/social center, Arbitrum is the DeFi/gaming center, etc. In turn, the L3s they attract are likely to follow this cultural pattern, maintaining the on-chain atmosphere and further enhancing Layer 2 capabilities and reputation.
For example, an L3 on Base might have a level of privacy required to handle consumer data or be customized for specific social use cases. Meanwhile, L3 on Arbitrum can be used exclusively for gaming.
To this end, Layer 3 provides extensive customizability to enhance these hubs and help them scale through:
Reduced Settlement Costs: Settlement costs are significantly reduced, making development more economically viable.
Areas of experimentation: L3s customizability provides the potential for unlimited experimentation, whether its new business models, different virtual machines, data availability solutions or governance models - something that wasnt possible on L1 or L2.
Privacy enhancement: L3 can become a privacy-centric layer, allowing anonymous transactions or encrypted messaging services, and opening the market to enterprise businesses that require this level of privacy.
New Economic Model: L3 could develop new or more robust economic models where tokens other than ETH can be burned for Gas, potentially increasing the value of that token over time.
Layer 3 can help evolve and enhance L2, providing enhanced scalability, reduced costs, and a customizable environment tailored for specific applications. This increases the capabilities of Layer 2 and can further establish them as central to specific use cases.
What are the examples of Layer 3?
The L3 case demonstrates the benefits of this extension approach by enhancing L2 functionality for targeted use cases. For example:
Yugas Apechain and Azukis Animechain: Both BAYC and Azuki recently announced L3 deployments using Arbitrums Orbit (the framework for launching L3). For BAYC, it allows them to create an environment specifically suited to their metaverse and gaming pursuits, such as Otherside, while also providing new use cases for their APE token. For Azuki, launching L3 will allow them to build a dedicated network for anime fans and creators. Whether these shifts reflect innovation or an attempt to stay relevant remains to be seen.
DegenChain and Frame Chain: In January 2024, the DEGEN token was launched on the fully decentralized social network Farcaster and quickly became a typical function of Casters to reward high-quality contributions. Launched on March 28, DegenChain introduces a cost-effective L3 solution for scaling all things DEGEN - tipping, rewards, competitions, creating new meme coins, and more. DegenChain borrows from Arbitrum Orbits and settles on Base, using DEGEN as its Gas token. It has processed more than 500,000 transactions and cemented Bases reputation as a social and consumer hub.
Likewise, Frame Chain for developers of Farcaster Frame (mini-applications deployed in Farcaster), OP Stack L3 on Base, provides high throughput, lowest gas cost, and is free for developers! So far, the chain has been used for projects such as token-gated commerce, interactive mini-games, and on-chain competitions, highlighting the usefulness of environments tailored to such specific use cases.
Xai Network: L3 Solution Developed with Offchain Labs, creators of Arbitrum, Xai Network is designed to meet the needs of large-scale Web3 games. Its interface simplifies wallet management for gamers and provides developers with enhanced gas and contract capabilities, such as processing transactions in parallel to create high throughput. XAI serves as the network’s native token, used for gas, rewarding validators, and as the primary currency for purchasing games and in-game assets. These features helped establish Arbitrum as a hub for Web3 gaming (a desire evident in their focus on funding game initiatives) and attracted popular games like Crypto Unicorns to migrate to their ecosystem.
These chains exemplify how an L3 can enable or enhance specific use cases, allowing its L2 to scale while carving out its own niche.
What do people use to build L3?
For some time, two things have hindered the adoption of Layer 3: the requirement and the standardized infrastructure to deploy them. Lets take a look at the leading frameworks that can launch L3.
Three of the leading solutions are:
Arbitrum Orbits: Expanding on Arbitrum’s L2 foundation, their Orbit chain allows anyone to make highly customized Layer 3 blockchains. Think of the Orbit Chain as a personal highway on Ethereum, capable of handling many more transactions than L1 or L2. While building on Layer 2 provides a universal scalable solution, Orbit Chain can be fine-tuned for specific needs, providing unparalleled scalability and customization. They can also be easily deployed using Rollup tools such as Conduit, making accessibility even easier.
OP Stack: Optimism’s OP Stack provides a toolkit for building cheaper and faster Ethereum-compatible blockchains. The advantage of building with OP Stack comes from its standardized framework, thus enabling immediate interoperability with other OP Stack-based chains, significantly reducing issues that may arise due to incompatibilities or bridging vulnerabilities.
Additionally, while OP Stack allows people to customize their chain however they wish, if they align with Optimism’s “Chain Laws,” their ecosystem will be eligible for retroactive funding to airdrop OP into their network. Another advantage of OP Stack comes from its current adopters, such as Base, the leader in the L2 ecosystem. Building with the OP stack guarantees composability with these networks, which is a competitive advantage for any chain being developed.
Starknet: Like other frameworks, Starknet is highly customizable and can be adapted to any use case while being extremely cost-effective and fast. Two things stand out about Starknet’s solution:
L3 built with SDK using Starknets Cairo. This efficient, developer-focused language delivers high performance and scalability without sacrificing security.
Starknet L3 uses Madara, a specialized sequencer, to build customizable and efficient application chains. Madara’s specific framework further enhances Cairo’s capabilities, resulting in safe, efficient and adaptable projects. This enables developers to build Layer 3 solutions for specific needs, such as cost-saving DEX or fast, private trading systems.
Arbitrum Orbits, OP Stack and Starknet Layer 3 provide accessible paths into the L3 ecosystem. They bring unique development tools for creating customized, efficient L3 solutions that collaborate with their ecosystem and present unique use cases.
in conclusion
Recent activity has pushed Layer 3 to the forefront of blockchain’s scaling journey, solving L2 limitations by delivering new efficiencies, customizability, and user engagement.
