What is Layer3? How to improve scalability?

What is Layer 3 and How Can Scalability Be Improved?

Layer3 protocol is a decentralized application that provides faster transaction speeds, lower gas fees, supports complex dApps, supports interoperability, and customization. Examples of Layer3 include Arbitrum Orbit, Orbs, zkSync Hyperchains, which can significantly reduce transaction costs, support Web3 games, decentralized financial applications, and enable real-time transactions. Layer3 is currently under development and will play a key role in the future, making it easier for blockchain to handle high transaction volumes.

Original Title: Layer 3 Blockchains: What They Are And How L3s Improve Scalability
Original Author: Hwee Yan
Original Source: coingecko

Key Points:
– Layer3 protocol is built on top of Layer2 and is used to host decentralized applications for specific purposes.
– Layer3 can solve various problems such as scalability, interoperability, and customization.
– Some examples of Layer3 protocols include Orbs, Arbitrum Orbit, and zkSync Hyperchains.
– Layer1s, Layer2s, and Layer3s work together to provide a comprehensive blockchain ecosystem.
– Layer1s are the foundational blockchains that add blocks and complete transactions.
– Layer2s address scalability issues by running on top of Layer1s and providing off-chain vertical scaling solutions.
– Layer3s are advanced protocols built on top of existing Layer2 solutions, providing interoperability and application-specific functionalities.
– Layer3s are highly customizable and can meet developers’ specific requirements, such as privacy solutions or supporting high transaction volumes while inheriting the security of Layer1 blockchains.
– Currently, most Layer3s are built on Ethereum, and some blockchains like Bitcoin are not yet suitable for hosting Layer3 applications.

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2. What problems does Layer 3s solve?

Now that we understand how Layer 1, 2, and 3 work together, let’s take a closer look at Layer 3s and how they further scale the blockchain.

Scalability

Layer 3s are designed to enhance scalability beyond the capabilities of Layer 1 and Layer 2, making them highly scalable. This allows the network to process a larger volume of transactions and support a wider range of complex applications simultaneously.

Support for complex dApps

Layer 3s can provide the necessary infrastructure for developing decentralized applications that require advanced features. This can help improve network design to include more advanced functionality in applications, making them more accessible to ordinary users. Depending on the developer’s needs, Layer 3s can also facilitate more complex smart contract designs that cannot be handled by Layer 1 and Layer 2 due to limited scalability.

Blockchain interoperability

Layer 3s also address the interoperability issue. Layer 3s can act as bridges between different blockchains, allowing transactions and data to flow between different platforms. This means that Layer 3 dApps have the ability to connect to different blockchains such as Ethereum and Solana.

Customization

Layer 3s can be customized according to the unique needs of developers. For example, developers can introduce application-specific mechanisms that only allow execution of private transactions and contracts, thereby revealing only partial data. Due to the highly customizable nature of Layer 3s, developers can tailor the governance mechanisms, rules, and functionality of their dApps based on their requirements.

Arbitrum Orbit allows developers to customize different aspects of their chain. For instance, developers can customize and choose which tokens to accept as transaction fees on their chain. This provides flexibility to developers and allows them to customize the functionality of their dApps based on their unique needs. Additionally, developers can customize their dApps to ensure users experience more consistent and reliable gas prices. Developers can also launch blockchain networks with specific features, such as Arbitrum’s Nitro-powered blockchain network and Stylus that supports EVM+. Some other customization features provided by Arbitrum Orbit include privacy, permissions, fee tokens, governance, and more.

Cost-efficient

Since Layer 3 networks handle some transactions and operations off-chain, this helps reduce network congestion and significantly lowers transaction costs. This cost-effectiveness helps lower the entry barrier, making it easier for developers and users to access.

For example, the Xai network is a game network specifically designed to support Web3 games. Built on Arbitrum’s Layer 3 network, the Xai network introduces parallel processing to improve efficiency and scalability while further reducing costs.

Accessibility

Layer 3s can also be designed to be more accessible to the general public and easier to implement. For example, Arbitrum’s Layer 3, Arbitrum Orbit, allows anyone to build and deploy their own Layer 3 on Arbitrum Nitro without approval. In contrast, launching Layer 2s requires proposals on trust models and how to achieve full decentralization.

3. Use Cases for Layer 3

Now that we understand the problems Layer 3 solves, here are some potential use cases for Layer 3:

Game Applications

One application case for Layer 3 is blockchain games. By running on Layer 3, the application can operate on a dedicated blockchain, enabling faster processing of larger volumes of transactions. This is particularly important for game applications as it helps developers provide a seamless gaming experience for users.

Game applications often deal with numerous microtransactions, which can be costly. Therefore, running the application on Layer 3 can ensure cost efficiency for users as the transaction fees on Layer 3 are lower.

Decentralized Finance Applications

Another possible application case for Layer 3 is decentralized finance (DeFi) applications. Running on Layer 3 is ideal for these applications as it allows developers to customize according to the application’s needs. This means developers can customize privacy settings and different functionalities of the application.

In addition, Layer 3 offers high scalability, ensuring the ability to handle a large volume of transactions quickly, which is crucial for real-time trading. Layer 3 also supports interoperability between various blockchain networks, allowing users to transfer their assets between different networks.

4. Examples of Layer 3

Although the concept of Layer 3 is still relatively new in the cryptocurrency field, here are some noteworthy projects:

Orbs

Working in conjunction with existing Layer 1 and Layer 2 protocols, Orbs is a Layer 3 blockchain focused on addressing the scalability issues faced by the Ethereum blockchain. According to their website, Orbs sees their Layer 3 as “enhanced execution” that allows developers to develop their smart contracts by running them on a decentralized serverless cloud.

Source: Orbs

This means developers can write and deploy their smart contracts on Orbs’ own decentralized network without worrying about the underlying infrastructure of the network. This brings the convenience of not having to maintain physical servers for developers. Currently, Orbs collaborates with several Layer 1 and Layer 2 protocols, including Ethereum, BNB Chain, Avalanche, Polygon, and more.

Arbitrum Orbit

In 2023, the Arbitrum Foundation also released its new feature – Arbitrum Orbit, which is envisioned as a Layer 3 blockchain built on top of the Arbitrum Nitro platform. In addition to lower transaction costs and enhanced scalability, developers can also create their own self-managed dedicated blockchain on the Arbitrum Nitro platform. This allows developers to leverage customized blockchains according to their specific needs.

zkSync Hyperchains

zkSync Hyperchains, launched by the zkSync team, can serve as Layer 3s that settle on Layer 2. zkSync Hyperchains use the same zkEVM engine as the ZK Stack, where all the ZKP circuits remain the same, and inherit Layer 1 security regardless of who deploys them. One benefit is faster message passing between Layer 3s settling on the same Layer 2, and interoperability within a broader ecosystem.

Source: zkSync Era

5. Conclusion: Final Thoughts

The development of Layer 3 is an interesting innovation in the cryptocurrency space. It improves on our previous technology by combining the advantages of Layer 1 and Layer 2 – such as making networks more scalable while maintaining security. Nevertheless, it is important to remember that each layer plays a crucial role in the blockchain ecosystem and they are not competing with each other. Currently, Layer 3 is still in the development stage, but I believe it is clear that Layer 3 will play a key role in shaping how we harness blockchain technology in the future, making it easier for blockchain to handle high transaction volumes.

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