What is Layer 3 That is Becoming Increasingly Popular?

[TL；DR]:

The popularity of Degen Chain and others has brought Layer 3 into people’s vision, and the emergence of this technology will bring higher scalability and interoperability to blockchain networks, providing customized solutions for different application scenarios.

Among the emerging Layer 3 use cases, Arbitrum Orbit and Starknet have shown the most outstanding performance and may shine in fields such as Game and DeFi.

If Layer 3 wants to break through, it must continue improving its technology and seek more large-scale adoption applications to support its breakthrough.

Introduction

On the day before April Fool’s Day this year, some encryption projects took advantage of the themes of Layer 4 and Layer 5 to create humorous jokes. Among them, dYdX even joked about the content of “the new version will be built on top of L4,” which even misled some media and made it spread as real news.

And this joke is naturally based on the increasing popularity of Layer 3. As for Layer 3, what everyone is generally concerned about is whether it is an inter-chain nesting doll or a custom extension, and whether it has the potential for scalability. This article will focus on this controversy to entertain readers.

Layer 3 Has Gained Popularity and Sparked Intense Community Debates

Recently, the popularity of Layer 3 has significantly increased, attracting a lot of attention.

Especially the outstanding performance of Layer 3 tokens such as Degen Chain, such as the short-term increase of over 150% by DEGEN, and the historical high of GHST prices after Aavegotchi’s transformation to Base Series Layer 3, further highlighting the potential of Layer 3.

Source: degen.tips

In traditional definition, Layer 2 is the settlement network on the Ethereum mainnet and has scalability. Layer 3, on the other hand, is built on top of Layer 2 and relies on it for settlement, providing a more scalable network.

The concept of Layer 3 was initially proposed by the Starknet (then StarkWare) team in the article “Fractal Scaling: From L2 to L3.” In Starknet’s vision, the Layer 2 virtual machine serves as a decentralized universal computing layer, maintaining a high degree of composability. In contrast, Layer 3 should serve as an application-specific chain, flexibly meeting the unique needs of various applications. Turing completeness provides a solid foundation for this hierarchical structure. In theory, as long as Turing completeness is present, any possible application can be constructed.

The background for proposing this idea was that Starknet developed the Cairo language and Cairo VM to generate proofs more efficiently, but these were not fully compatible with Ethereum. At this point, Layer 3 chains can play their role and provide the necessary security guarantees for these applications. Through this approach, Layer 3 has become an effective means to overcome the limitations of Layer 2, further promoting the development of blockchain technology.

From a technical perspective, Layer 3 surpasses existing L1 and L2 solutions by anchoring blockchain networks to L2, achieving higher security and potentially bringing exponential scalability advantages. However, as both Layer 2 and Layer 3 rely on the main network for settlement, their data compression and synchronization mechanisms have become the focus of discussion.

In the context of Layer 2, transaction data is packaged, compressed, and synchronized to the Ethereum network. Similarly, Layer 3 will adopt a similar mechanism to compress and synchronize its transaction data to the Layer 2 network.

However, this approach, similar to applying Rollup again on Rollup, has been questioned and criticized. Because if we continue to envision higher-level networks such as Layer 4 and Layer 5 with this architecture, we will face the limit problem of data compression, as data cannot be continuously compressed indefinitely.

For example, some institutions such as Polygon Labs have explicitly stated that they will not develop Layer 3, while dYdX even mocks Layer 3’s whimsical ideas by creating Layer 4. Even Vitalik recently stated that Layer 3 does not magically enhance processing power. These voices reflect the cautious attitude of the industry towards the feasibility and practicality of Layer 3 technology.

Source: @VitalikButerin

Inventory Those Layer 3 Instance Projects

Layer 3 aims to address the interoperability issues between blockchains and meet the customized needs of developers, making it easy for the public to use and implement, including governance mechanisms, rules, and functions. Through off-chain processing of transactions, Layer 3 can further reduce network congestion and transaction costs based on Layer 2, improving cost efficiency.

Presently, among the emerging Layer 3 use cases, Arbitrum Orbit and Starknet have shown the most outstanding performance and may shine in fields such as Game and DeFi.

Arbitrum Orbit

In 2023, the Arbitrum Foundation launched a new feature - Arbitrum Orbit, a Layer 3 blockchain built on the Arbitrum Nitro platform. In addition to providing lower transaction costs and higher scalability, Arbitrum Orbit allows developers to create self-managed, dedicated blockchains on Arbitrum Nitro.

Starknet Stack

In contrast to the simple stacking method, Starknet assigns different responsibilities to L2 and L3 in the newer L3 framework. It emphasizes that L3 should focus on providing customized features such as privacy protection or application-specific optimization rather than simply pursuing scalability.

Source: Starknet

In February of this year, Starknet officially announced a partnership with Celestia to build a high-throughput Layer 3 network jointly. However, given that Starknet uses a unique zk STARK-proof technology, which is currently relatively immature, it will still take some time for Starknet Stack to be launched.

Orbs

Orbs, as a new Layer 3 blockchain, aims to address the scalability issues of Ethereum and work in collaboration with existing Layer 1 and Layer 2 protocols.

Orbs Layer 3 is an “enhanced ution” layer that allows developers to run and develop smart contracts on a decentralized server cloud. This means that developers can focus on writing and deploying smart contracts without worrying about underlying network infrastructure or maintaining physical servers.

Presently, Orbs supports using multiple Layer 1 and Layer 2 protocols such as Ethereum, BNB Chain, Avalanche, Polygon, etc.

zkSync Hyperchains

Another noteworthy technology is the zkSync Hyperchains launched by the zkSync team, which can be considered as Layer 3 and used for settlement using Layer 2.

These Hyperchains are driven by the same zkEVM engine on the ZK Stack, ensuring consistency across all ZKP circuits on the platform and inheriting the security of Layer 1.

A significant advantage of this architecture is that it enables faster message passing between Layer 3 settled on the same Layer 2 and promotes interoperability across a broader eco.

To Sum Up

Layer 3 mainly solves the scalability, complex dApp support, blockchain interoperability, customization, high cost-effectiveness, and blockchain accessibility.

It not only enhances the scalability of blockchain and supports complex dApp development, but also serves as a bridge between different blockchains, achieving cross-platform Flow of transactions and data. Meanwhile, Layer 3 allows customization based on developer needs, reducing transaction costs, improving cost-effectiveness, and making blockchain technology more accessible to the public.

However, from the evolution of encryption technology, Layer 3 cannot achieve performance leaps solely through simple stacking. Although customization can bring specific advantages, the loss of universality limits the feasibility of its stacking.

Source: LK Venture