Are Layer-3s the Key to Accelerated Blockchain Adoption?

Are Layer-3s the Key to Accelerated Blockchain Adoption?
July 5, 2024

We explore Layer-3s, what they are, their advantages, challenges, and the road ahead.

Blockchain technology has evolved rapidly since the launch of Bitcoin in 2009. Over the past 15 years, we’ve witnessed the emergence of Layer-1 and Layer-2 solutions. These Layer-1 and Layer-2 solutions were created to address different challenges related to scalability, security, and decentralisation. 

Now, the spotlight is on Layer-3 solutions, which promise to further accelerate blockchain adoption by enhancing scalability and improving user experience. Are Layer-3s the key to accelerated blockchain adoption? Let’s delve into what Layer-3 blockchains are, their potential benefits, and the role they could play in the future of the blockchain ecosystem.

Understanding Layer-3 blockchains

To appreciate the significance of Layer-3 blockchains, it’s essential to understand the foundational layers that precede them:

• Layer-1: This is the base layer of the blockchain, where the core protocol operates. Bitcoin, Ethereum, Solana and other primary blockchains are examples of Layer-1 solutions. They handle all the basic operations, including consensus mechanisms, transaction processing, and data storage.
• Layer-2: These solutions build on top of Layer-1 to address scalability issues without altering the base protocol. Examples include the Lightning Network for Bitcoin and Plasma or Optimistic Rollups for Ethereum. Layer-2 solutions aim to process transactions off the main chain, reducing congestion, costs and improving transaction speed.

Layer 3s are built to work in conjunction with Layer-2s to decongest the Layer-1 blockchains. Additionally, they further optimise various consensus mechanisms and data structures, enabling higher throughput and transaction processing capabilities as compared with Layer-2s. 

Ultimately the real benefit of Layer-3s relates to usability and interoperability. This is because Layer-3 solutions are often referred to as the application layer or the execution layer and represent the next step in this evolutionary chain. They focus on enhancing the functionality of blockchain networks. This is done by simplifying the development process, providing tailored execution environments and offering a more efficient way to access, execute and manage decentralised applications (dApps). According to Blockworks, Layer-3 blockchains are designed to provide additional scalability, reduce costs, and improve the user experience by operating as an intermediary layer between Layer-2 solutions and the end-user applications. Vitalik Buterin, co-founder of Etheruem, says that Layer-3s will serve a different purpose to scaling solutions by providing customised functionality, but they will only really make sense if they provide different functions to Layer-2s.

Advantages of Layer-3 blockchains

Layer-3 solutions offer several advantages that could drive accelerated blockchain adoption:

1. Enhanced scalability and performance enhancements: By offloading certain computational tasks (or introducing specialised execution environments and optimisations) from Layer-1s and Layer-2s; Layer-3 solutions can significantly increase transaction throughput and achieve superior scalability and performance. Scalability and performance enhancements make it possible to support a larger number of users and dApps such as gaming or decentralised exchanges, without compromising performance. 
2. Improved user experience: Layer-3 solutions can streamline interactions with blockchain applications, making them more user-friendly. This includes simplifying wallet management, reducing transaction fees, and offering faster transaction finality. 
3. Improved developer experience: Alongside an improved user experience, Layer-3s can specifically provide higher-level abstractions and a more developer-friendly experience. Further, Layer-3 solutions can significantly lower the barrier to entry for blockchain development. Developers can leverage familiar programming languages, tooling, and frameworks, streamlining the development process and attracting a broader pool of talent to the blockchain ecosystem.
4. Greater interoperability and composability: Layer-3 solutions can facilitate seamless interactions between different blockchain networks, allowing for cross-chain communication and asset transfer. This composability and interoperability are crucial for creating a cohesive ecosystem where dApps on different chains can communicate, innovate and collaborate effectively.
5. Specialised Services: Layer-3 solutions can provide specialised services tailored to specific use cases, such as gaming and DeFi, for example. With many blockchain gaming projects centred around in-game asset ownership in the form of NFTs, the boost to their accessibility from Layer-3s means that their ecosystems can thrive and be more adaptable than ever for gaming projects. DeFi can benefit via the introduction of customisable smart contracts meaning platforms can offer even more financial products, allowing investors more ways to generate yield. By optimising for specific applications, they can deliver superior performance and user satisfaction.

Layer-3s in Action

One of the compelling examples of Layer-3 solutions is how they can bring unprecedented levels of scaling and serve as middleware that connects Layer-2 scaling solutions with dApps. This middleware can handle complex operations like smart contract execution, state management, and cross-chain communication more efficiently. 

For example, Starknet is a decentralised Layer-3 blockchain built on top of Ethereum. Starknet aims to provide a scalable and secure execution environment for dApps while inheriting the security and decentralisation of the Ethereum network. It utilises zero-knowledge proof technology to enable high throughput and low transaction fees.

Moreover, Layer-3s can accelerate transaction speeds. By implementing advanced cryptographic techniques and optimising the execution environment, Layer-3 solutions can process transactions at a fraction of the time and cost associated with traditional methods. For example, Degen Chain, built on top of BASE blockchain, is characterised by its swift and efficient processing of payments and gaming transactions.  

Challenges and considerations

Despite their potential, Layer-3 solutions are not without challenges. One of the primary concerns is security. Introducing an additional layer increases the ‘attack surface’, potentially exposing the network to new vulnerabilities. Ensuring robust security measures and thorough testing is crucial to mitigate these risks.

Another consideration is the complexity of implementation; Layer-3s run the risk of fragmenting liquidity in the Ethereum ecosystem. Developing and integrating Layer-3 solutions require advanced technical expertise and significant resources as opposed to other Layer-1s such as Solana and Sui, which can be cheaper and process transactions quicker than Ethereum. This can be a barrier for smaller projects or startups with limited budgets. Further, key opinion leaders (KOLs) like Marc Boiron believe Layer-3 projects will devalue Ethereum or the Layer-1 chains these Layer-3 blockchains are built on. 

Another disadvantage is centralisation. Most Layer-2 blockchains use a single sequencer node to organise transactions, usually operated by the core development team behind the project. Logically, this arguably makes them very centralised. Due to the centralised nature of Layer-3s, some KOLs like Mert (CEO of Helius Labs) argue that Layer-3s have re-created the Web2 experience, only with higher fees  and worse UX.

The road ahead

The future of blockchain technology is promising, and Layer-3 solutions are poised to play a pivotal role in its evolution. As the blockchain ecosystem matures, we can expect to see more Layer-3 projects emerging, each bringing innovative solutions to enhance scalability, user experience, and interoperability. 

For blockchain adoption to accelerate, it is essential that these Layer-3 solutions are developed with a focus on security, usability, and seamless integration with existing infrastructure. By addressing these key areas, Layer-3 solutions could unlock the full potential of blockchain technology, paving the way for a more decentralised and efficient digital future.

Words: Dasha Kruchkoff