What Are Layer 3 Blockchains?

Scaling solutions in the form of Layer 2 blockchains have become a mainstay in modern DeFi over the past two years. As the blockchain ecosystem and its user base continue to grow, developers are continuously looking to improve their applications' performance.

Layer 2 networks allow DeFi protocols to offer their users incredibly low transaction fees compared to Ethereum mainnet without sacrificing the security guarantees of the underlying Layer 1 blockchain.

While these fees are attractive to the current consumer base, Layer 2’s are still susceptible to issues such as network congestion and lack of customizability. Many dApps that expect to scale to massive consumer bases will demand a high volume of concurrent transactions and can also require more niche functions that may not be ideal for other dApps co-existing on the Layer 2.

Layer 3 blockchains offer dApps a highly customizable and interoperable network that is built on top of a Layer 2. With this customizability, developers can implement solutions for targeted requirements and can spread out the workload that comes with extremely high transaction volumes. Being able to target niche features and issues allows for complex dApp design that can increase both performance and accessibility for users, while still inheriting the security benefits of the underlying Layer 1.

Most major Layer 2s, including Arbitrum and Optimism, have released tooling to make it easy for developers to deploy bespoke Layer 3s.

Use Cases for Layer 3 Blockchains

Layer 3 blockchains act as an application layer for users, where each development team can customize the chain as per their needs. Through specialized functionality, Layer 3 technology is an ideal fit for Web3 niches such as blockchain gaming, DeFi applications, and privacy applications.

When considering dApps such as blockchain games, in order to scale appropriately to the consumer gaming market, the network must be able to handle hundreds or even thousands of microtransactions at once, which would lead to network congestion issues on either a Layer 2 or a Layer 1. The Layer 3 solution allows the network to exclusively cater to the game(s) utilizing the specific chain, which becomes much more predictable and manageable.

Looking Ahead

While Layer 3s remain largely out of the limelight, they present a crucial application and interface layer for decentralized applications that plan to scale to mass market audiences. The Layer 3 solution can bypass issues faced in L1 and L2 ecosystems, such as interoperability, customizability and network congestion, without sacrificing security or integrity.

Given the small size of the modern DeFi market, there isn’t an overwhelming demand for their implementation quite yet. However, as user bases begin to scale, and protocols look to push more innovative features, the eventual need for Layer 3 blockchains becomes much more apparent.