Understanding Layer 3s (L3s): The Next Evolution in Blockchain Scaling

Layer
3s
(L3s)
are
emerging
as
a
significant
development
in
the
blockchain
ecosystem,
according
to

paragraph_xyz.
These
new
layers
offer
developers
the
ability
to
create
customized,
cost-efficient
applications
that
settle
on
existing
Layer
2
(L2)
infrastructures,
thereby
enhancing
the
scalability
and
efficiency
of
blockchain
networks.

What
are
Layer
3s
(L3s)?

L3s
can
be
viewed
as
“onchain
servers”
that
provide
isolated
state
environments
and
fee
markets
while
settling
to
an
underlying
L2.
This
allows
applications
to
control
their
own
blockspace,
leveraging
the
existing
liquidity
and
user
bases
of
L2s.
According
to
paragraph_xyz,
L3s
offer
up
to
1000x
cheaper
costs
due
to
lower
onboarding
and
settlement
costs
and
the
use
of
alternative
data
availability
(DA)
layers.

Cost
and
Customizability

The
cost
benefits
of
L3s
are
primarily
driven
by
lower
onboarding
costs,
cheaper
settlement
and
execution
costs,
and
the
use
of
alternative
DA
layers.
Additionally,
L3s
offer
greater
customizability
as
they
are
held
to
a
lower
decentralization
standard
compared
to
L2s.
This
allows
for
experimentation
with
new
tokenomics,
virtual
machines,
and
alternative
DA
solutions.

Differences
Between
L3s
and
L2s

While
L3s
share
similarities
with
L2s,
such
as
settling
to
an
L2
and
using
canonical
or
third-party
bridges,
they
differ
significantly
in
their
approach
to
data
availability.
L3s
often
use
alternative
DA
layers
like
Celestia
or
EigenDA,
which
enables
them
to
achieve
extremely
low
gas
costs.
The
software
stack
used
by
L3s
can
also
differ
from
that
of
their
underlying
L2,
offering
further
customization
options
for
developers.

Launching
L3s

Developers
have
multiple
options
for
launching
L3s,
including
running
the
stack
and
infrastructure
themselves,
leveraging
Rollup-as-a-Service
(RaaS)
providers
like
Conduit
or
Caldera,
or
consulting
with
white-label
service
providers
like
Syndicate.
These
options
provide
flexibility
in
deployment
and
management,
making
it
easier
for
developers
to
build
and
scale
their
applications.

Future
of
L4s
and
Ecosystem
Implications

According
to
paragraph_xyz,
the
concept
of
L4s
(Layer
4s)
is
unlikely
to
materialize
as
L3s
already
provide
dedicated
blockspace
and
the
ability
to
natively
bridge
into
L2
hubs.
Instead,
L3s
are
expected
to
scale
horizontally
by
spinning
up
additional
L3s
that
settle
to
the
same
L2.
This
approach
could
lead
to
a
future
where
L2s
act
as
hubs
with
millions
of
L3
servers.

L3s
represent
a
potential
paradigm
shift
for
onchain
developers,
breaking
the
subcent
barrier
and
reducing
the
threshold
for
building
mainstream-scale
onchain
applications.
They
offer
an
experimental
playground
for
high
throughput,
low-cost
applications
that
can
tap
into
L2
hubs
for
liquidity
and
distribution.
This
could
lead
to
an
“app
store”
moment
with
millions
of
L3s,
fundamentally
changing
the
landscape
of
blockchain
technology.

Economic
and
Developmental
Impact

The
introduction
of
L3s
could
significantly
reduce
the
operational
costs
of
blockchain
networks.
While
the
annual
cost
of
operating
an
L2
can
range
from
7
to
8
figures
in
USD,
L3s
operate
at
a
much
lower
cost
profile,
estimated
between
$25,000
and
$50,000
annually.
This
cost
efficiency
could
drive
the
popularity
of
frameworks
beyond
Solidity
and
Vyper,
resulting
in
multi-VM
environments
that
attract
a
broader
range
of
developers.

The
value
created
by
L3s
will
primarily
rely
on
the
application
layer,
focusing
on
user
engagement,
transactions,
and
token
utility
rather
than
sequencer
fees.
As
the
number
of
L3s
multiplies,
network
effects
will
drive
value
creation
on
both
the
software
and
protocol
sides,
benefiting
developer
tools
and
data
availability
solutions.

Challenges
and
Future
Outlook

For
L3s
to
succeed,
they
will
require
smoother
interoperability
and
chain
abstraction.
Bridging
between
L3s
and
L2s
needs
to
become
seamless
to
provide
a
better
user
experience.
Third-party
providers
may
play
a
crucial
role
in
achieving
this,
given
the
experimental
nature
of
L3
stacks.

In
conclusion,
L3s
offer
a
promising
avenue
for
blockchain
scaling,
providing
isolated
onchain
application
experiences
while
leveraging
underlying
L2
hubs.
As
Coinbase
Ventures
continues
to
invest
in
this
space,
the
growth
of
L3
builders
is
expected
to
drive
significant
advancements
in
the
blockchain
ecosystem.

Image
source:
Shutterstock