It’s true that a lot in the world of crypto at the moment seems depressing rather than elating. You would agree that this is quite ironic for a space that still chants the famous “we are still early” phrase—now questionable because how early are we if a grim reality tinges all we see these days?
This grim reality can be observed in the eyesore amount of low float, high FDV tokens that can’t seem to find a bottom, as well as in the now relatively regular disappointments in protocol airdrops, and also in the in-flock of celebrities into the memecoin space, sucking whatever liquidity that is left.
In fact, void of research, if I were to ask you right now what you thought about layer 3 networks, what would you say? Right after you probably received some measly airdrop from the ninth layer 2 protocol that’s promised to truly scale Ethereum.
Or after you’ve just checked your portfolio only to see all your fundamental tokens doing the opposite of making you rich. I’d be willing to bet that your opinion would be a pessimistic one, and that layer 3 networks are simply not a priority.
But here’s the thing, mate! Recently, we have begun to see strength and attention on layer 3 tokens or tokens building a layer 3 network. It would be a disaster not to look into what is going on in that scene. Who knows, maybe there are some gems that save our portfolios.
And so, It’s within this premise that we are exploring the layer 3 landscape, answering some of the most important questions: what’s a layer 3 network, why they exist, the predecessors, and various Layer 3 networks that have caught our attention.
Journey to Layer 3 networks: Layer 1&2
Before we delve into the world of layer 3 networks, it’s important to recognize the preceding layers 1 and 2, and revisit the concept of blockchain networks.
Foremostly, just as we’ve outlined in our freely accessible educational article on blocmates academy: ‘The term blockchain comes from the concept of digital ‘blocks’. Each block contains a bundle of transactions. Every time a new transaction occurs, it's recorded in one of these blocks.
Once the block is full, it's sealed and linked to the previously filled block, forming a chain. This chain of blocks is visible to everyone in the network, making it transparent and impossible to change. This gives it an immutable, transparent, and permissionless nature.
At their core, the above description explains layer 1 blockchains such as Ethereum, Bitcoin, and the Binance Smart Chain. However, the limitations of layer 1 blockchains have led to the development of layer 2 blockchains, which aim to improve the existing layer 1 infrastructure.
These layer 2 solutions strive to scale the mainnet by addressing the aspects of the blockchain trilemma: decentralization, security, and scalability. An example of this situation can be seen in the lightning network for Bitcoin and many other scaling solutions built on top of Ethereum.
In the case of Ethereum, scaling for a more efficient Ethereum network birthed a proliferation of layer 2 (L2) network chains such as Arbitrum, Optimism, Mantle, Starknet, and even zkSync — all of which can be categorized by their choice of scaling method: state channels, plasma, side chains, rollups, modular, or Validiums like Polygon.
These L2s reduce the workload on the mainnet, and more recently, with the introduction and adoption of modular approaches to scaling, a further decoupling of the computational load on layer 1 networks has been achieved to quite an extent by L2s. The most used scaling solutions are rollups. Specifically, optimistic (Arbitrum, Optimism, Base, Mantle) and less-so zk-rollups (zkSync, Scroll, Polygon zkEVM).
The simplest way to think of how an L2 rollup works is that it handles multiple transactions on said L2, rolls them up and submits the batched transactions to the L1.
This way, we can increase the transaction throughput and decrease the volume and load on the L1.
Layer 3
Layer 3 protocols, as we now identify them, are built on top of a layer 2 network to contribute to the scaling of L1 and L2s and are also dApp-specific networks (i.e., chains for a specific application).
As the first layer, layer 1s are the foundation, layer 2s, the scaling solution, and now layer 3s are the application layer that allows developers to develop applications leveraging the previous layers for security and scalability. So therefore, being a lot more efficient than applications built on layers 1 and 2.
Within this framework, layers 3 are the future of blockchain evolution, where more complex yet efficient and functional applications will be built.
Some of the features that are associated with layer 3 networks are:
> They are a notch higher in terms of scalability than L2s — ensuring that the base layer is even more efficient for users of applications
> They’re more efficient in terms of fees as they’re built on layer 2s that are more cost-efficient than the main network
> They’re usually developed using the stack of an underlying L2 such as Optimism stack or Arbitrum stack
> L3s are app-specific network chains that cater to a specific set of actions rather than a plethora of applications
> Interoperability is a lot more efficient for dapps built on L3s
Some Layer 3 networks that have our attention
L3s provide a better environment for the development of specific applications. As such, it is not uncommon to see a few dapps announcing the development of their own L3 network and a few others coming to the market as L3s right off the bat.
Next, we’ll breeze through a few of them that have caught our attention with brief details as to what they bring to the market.
Sanko GameCorp
Sanko GameCorp has just launched its own L3: Sankochain — an Arbitrum Orbit network that will power games and other verticals across the Sanko ecosystem.
At the moment, Sanko is in the process of migrating existing games, with SankoPet, the official flagship game of Sanko GameCorp, already live on Sankochain mainnet.
The Sanko ecosystem is governed by the $DMT token and has received a lot of attention in recent weeks. Part of the Sanko ecosystem is a socialfi streaming platform, SankoTV, allowing game players to connect and live stream, as well as trade items.
Cheesechain
Cheesechain is an EVM layer 3 built for the most degenerate onchain activities.
It launched its $cheese token on Solana; however, it’s gone on to launch a few products to make up the ecosystem, such as a Gouda club, a product that operates similarly to pump.fun, allowing users to create meme tokens quickly on Cheesechain, and a DEX to swap tokens on the chain.
Hamchain
We’ve just spoken about cheese, and here comes Ham.
It might seem as though L3s are named after specific meals. Nonetheless, Hamchain is an Ethereum-aligned Base chain layer 3 network that provides onchain social data and tipping functionality. It is governed by the $HAM token, which is backed by the TN100x memecoin.
The chain is an offshoot of memecoin activity native to the popular Base socialfi platform, Warpcast, and is developing into an ecosystem that explores a plethora of activities built around the TN100x and HAM native tokens.
XAI GAMES
XAI is an Arbitrum Orbit layer 3 network built to support advanced-level gaming on-chain through a decentralized node structure that allows millions of node runners to contribute to the network.
The goal of the XAI network is to allow sophisticated games to run on the network so that players will not need to interact with crypto wallets to enjoy the benefits of open trade.
The XAI tokens incentivize node runners, using an escrow system that allows node runners to dynamically benefit from offering their services without disrupting the network or the tokenomics.
However, the token can be extremely volatile, and it is also important to bear in mind that huge unlocks are on the way for the XAI token.
Degen chain
Degen chain is a layer 3 network built on top of Base (L2), and is governed by the $degen token. The $degen token is integrated into the Warpcast social platform built on Farcaster, and is used to reward creators on the platform.
Since mainnet, apps such as “Alphafrens” — a dApp offering private alpha chats for everyone, Rivera creating vaults on the L3, and Degenswap for token swaps have been developed on the chain. The $degen token continues to be a tipping token on Farcaster amidst other utilities built around it.
RARI chain
RARI chain is a sector-specific layer 3 network built on top of Arbitrum and powered by Caldera. The chain focuses on NFT creators, allowing them to build the next generation of NFT use cases leveraging instant confirmation times for interoperable transactions.
The Rari chain will leverage Celestia for data availability and EspressoSys for decentralized sequencing with the support of Caldera. The RARI chain will pioneer a new system of incentivizing creators and building communities and power apps like the Rarible NFT marketplace.
Proof of Play
Proof of Play is an onchain gaming studio and tech company developing uncompromisingly fun and fully on-chain games on Arbitrum orbit.
Having raised $33 million in a round led by venture giants A16z, the gaming studio has released its first on-chain game, Pirate Nation—a fully on-chain pirate-themed RPG on ETH (L1) and playable seamlessly on Arbitrum Nova (L2).
Following the launch of Pirate Nation, each proof-of-play game will likely have its own tokenomics, in-game items, and other features that make it attractive to players.
Closing thoughts
Beyond the layer 3 chains mentioned above, a number of other layer 3 networks are built using either the Arbitrum or Optimism stack to cater to specific purposes, enhancing layer 2 performance.
Moreover, there’s a trend in dapps not only migrating to their own L3 networks but also building app-specific layer 1 blockchain, such as Hyperliquid's Hyperliquid EVM, to optimize performance.
Rollups-as-a-Service can also help fast-track apps with product-market fit to go live on their own chain, using platforms like Conduit, Caldera, Gelato Network, etc.
We’re keen to see how the L3 narrative continues to progress, especially in the wake of a memecoin cool-off and a perceived re-focus on utility tokens.
While we might not be able to gauge the duration of this new attention on layer 3, it’s important to keep tabs on emerging narratives, especially when market data backs them.
