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.