What is a Layer-3 (L3) solution?

How did L3 solutions emerge?

Layer-3 (L3) solutions are a catch-all for protocols deployed atop existing L2 solutions. As with L2, the third layer is designed to scale and extend the functionality of the base blockchain.

The concept has been around for more than eight years. One of the first to articulate the idea of multi-layer blockchain scaling was Ethereum’s founder, Vitalik Buterin, in 2015. The approach gained wider attention from StarkWare’s work, published at the end of 2021.

As of November 2023, most L3 design focuses on the Ethereum blockchain.

What are they for?

L2 solutions scale the base blockchain, tackling low throughput and high transaction fees. L3, in turn, offers two core advantages that are hard to achieve at the second layer:

• Customisable scalability. The third layer allows per-application settings—for instance, computation models different from the EVM or alternative data formats;
• Customisable functionality. L3 enables standalone applications and networks with finely tuned features. For example, it can support confidential transactions without exposing any data at the second layer.

L3 can be viewed as a layer for launching distinct applications or networks that are connected by L2 standards.

Which L3 solutions exist today?

The L3 market is only just forming. Most development comes from L2 teams on Ethereum, including Optimism, Arbitrum and zkSync. Each has its own vision.

Hyperchains. Matter Labs, the team behind zkSync, aims to create a network of interconnected blockchains using zero-knowledge proofs. To that end, the team released the ZK Stack developer toolkit. The architecture lets developers deploy “hyperchains” as parallel L2s as well as third-layer protocols.

Within Hyperchains, the testnet for the L3 solution Pathfinder has already launched. In early 2024, the release of the hybrid crypto exchange GRVT is expected, combining a centralised-exchange interface akin to Robinhood with non-custodial asset storage, as with Uniswap.

Superchain. This is a scaling concept for Ethereum from the Optimism L2 team, built on the OP Stack. For now, the idea is to create parallel L2s operating independently, with the option to develop L3s in due course.

Within Superchain, an OP Stack rollup client from venture giant a16z is already running. In August 2023, the US exchange Coinbase launched the Base L2 network on Optimism’s architecture. 

Other L2s have signalled interest in moving to Superchain. cLabs, developer of the Celo L2 network, has proposed that its community migrate to the OP Stack.

Orbit. Offchain Labs, the team behind Arbitrum, released a developer toolkit in June 2023 aimed at building L3 solutions on Arbitrum. Orbit targets L3 applications with a high degree of customisation.

The L3 ecosystem on Arbitrum already includes about a dozen projects, spanning Web3 games, financial dapps and NFT initiatives.

What else is labelled L3?

Any network or infrastructure built on existing L1 and/or L2—without competing with them—may be described as L3. Such systems handle complex computation, interact with external data, and enable new use cases. For instance, an L3 can bring real-world data on-chain for use at layers 1 and 2 in DeFi.

Chainlink, a decentralised oracle network that supplies correct off-chain data for smart contracts at all blockchain layers, is often classed as L3. 

Infrastructure projects such as Orbs are also cited. Orbs operates as an overlay across networks with differing consensus and architectures. It works with Ethereum, TON, Polygon, BNB Chain, Avalanche and Fantom, providing developers and companies with additional functionality and interoperability for their applications. 

In the same vein are solutions from Polkadot, known as parachains. This functionality adds an extra layer for Web3 application interoperability, simplifying the exchange of data and assets.