We used to have just Bitcoin. Then there was Ethereum. Eventually Layer 2 chains were created. Now, we have Layer 3 chains. Recently many people have pointed out that Ethereum is turning into an onion, and in fact, it kind of is. There are crypto protocols that act as “layers” that wrap over Ethereum. Layer 2 protocols are built directly on top of Ethereum. Layer 3 protocols are built - you guessed it - directly on top of Layer 2s. But what’s the point of being an onion? What do Layer 3 protocols achieve? And how many layers do we need on top of Ethereum?
The difference between L2s and L3s
When the Ethereum network gets congested, simply sending assets to another wallet can cost over a dollar. With the introduction of L2s, users can potentially do hundreds of transactions for under a dollar total, in a fraction of the time it takes on Ethereum. This of course depends on which L2 you use, as they all have slightly different speeds, fees, and capabilities. Read more about L2s here.
The key difference between Layer 2 chains (L2s) and Layer 3 chains (L3s) is the cost to transact. Transactions on L3s can cost up to 10,000x less than they do on L2s. This allows for high-throughput protocols to thrive where they couldn’t before. Some fun ideas devs have explored so far are:
- SocialFi chains, where every post, comment or like is recorded onchain.
- Gaming chains, where every in-game action is recorded onchain.
- Chains dedicated to trading (memecoins 🤪) at a fraction of the cost compared to L2s.
In the screenshot below, Will Papper shared a frame on Warpcast letting users mint an NFT on Syndicate Frame Chain. It shows a live update of how much gas would have cost to mint the NFTs on Ethereum vs how much it actually cost on their L3. Not even a single penny, after tens of thousands of mints. That's over a 1,000x decrease in gas cost compared to the L2 and a 100,000,000x decrease when compared to Ethereum, the L1.
What this means for the industry
Put simply, Ethereum’s ecosystem just evolved:
Decentralized finance (DeFi) protocols can now offer even more financial products than they already do. Deri Protocol is just one example - an L3 focused on creating an interoperable DeFi ecosystem between L2s, eventually allowing users to stake cross-chain assets.
SocialFi can be explored in ways never before possible. One of the biggest problems devs currently face when building SocialFi dApps is the inability to handle large amounts of traffic and onchain data. L3s fix this with their ultra-low costs and increased scalability.
Onchain gaming is quickly becoming a reality. When a game is fully onchain, it isn’t running on any servers. No one can shut the game down. Onchain games offer permanence, interoperability and composability. RIP to the legends lost to time. 😔 🪦
Building onchain AI agents is now feasible. Imagine an AI operating as a dApp or even as its own L3. By taking advantage of cheap gas fees, AI built on L3s can handle complex tasks like optimizing smart contracts or offering users personalized trading strategies and experiences.
L3s have also unlocked completely new use cases that users may not have otherwise engaged with. Degen and Ham chains, for example, enable users to tip each other on Warpcast by significantly lowering the cost of each transaction. This incentivises brands and creators to post quality content in order to be rewarded directly onchain.
Graphic by 0xshakib
Wen L4s?
If we do everything right, we technically shouldn’t need L4s. One of the greatest advantages to building an L3 is the ability to leverage the underlying liquidity and users on the L2s (Arbitrum, Optimism, Base, etc). An L4 chain would be one step removed and even further from the liquidity on the L2s, which defeats the purpose. Also, contrary to popular belief, an L4 would not improve the cost compared to L3s. If L3s reach their scaling limits, they’re much more likely to scale horizontally (by creating multiple L3s that settle transactions to the same L2) rather than building an L4 “above” the L3.
Although we may never see a Layer 4 chain, there are many more L2s and L3s than on Ethereum alone. Solana has L2s, Bitcoin has L2s, and that's just the beginning. Thankfully you can explore them in a wallet like Enkrypt!
Wanna try some out?
You already know we got you covered. Our mutichain browser extension Enkrypt recently added our first 3 L3s - Sanko GameCorp, Degen, and Ham Chain.
Sanko Gamecorp is an L3 focused on gaming and socialfi experiences. What began as a Tekken-style onchain fighting game has slowly but surely evolved into a whole ecosystem of projects including games, an onchain streaming platform, and their flagship project Sanko Pets.
Degen is designed to incentivize and reward users on the Warpcast platform through a unique tipping system. This allows communities to more directly support their favorite content creators and brands.
Ham Chain allows users to tip using their native $TN100x token. Focused on building a memecoin economy on Warpcast, $TN100x is the main tipping token that it all revolves around.
The future of L3s
Ethereums “sluggishness” when compared to competitor chains like Solana or NEAR Protocol is due to its decentralization. Imagine if you and a few friends checked every transaction sent between each other. This would be very secure and decentralized. But if your friend group grows to 10,000 or 100,000 people, imagine how much longer that same process would take! This has ultimately led to the creation of L2s and L3s. Now, the question is whether or not the next billion users will even care about decentralization, or if they will mind using centralized chains that perform similarly to L3s. If you ask me, new users should definitely care about decentralization. Without decentralized systems, we’ll likely just end up with the same old financial behemoth that crypto was created to kill overcome.
At the end of the day users are going to flock to whatever is the cheapest and most convenient chain. L3s may be incredibly cheap, but convenient? That’s another story. Onboarding your grandmother from L1 to L2 to L3 via different bridges at every layer is a few more steps than her little 95 year old fingers can handle. And if that’s the case, we still have much work to do. The good news is that multichain wallets (like Enkrypt 😊) at least make the process a little less tedious. As L3s continue to grow and evolve, we’ll see many new ideas from both devs and users alike. Some will be more useful than others, but that’s for you to decide. The future is bright, so let's get to it!
