Technologies related to blockchain never stop developing. Although we have hardly had time to adjust to the concept of a Layer 2, it is time to learn the subtleties of Layer 3 projects. And choose the most influential Layer 3 projects.
Basically built on top of Layer-2 solutions, Layer-3 blockchains enhance the performance, interoperability, or functionality of the fundamental blockchain architecture.
Their more flexible, efficient, and user-friendly blockchain ecosystem is meant to solve the flaws in the previous layers.
Over time, especially from companies, the extensive application of blockchain technology has also drawn a lot of interest. However, one of the main challenges stopping more general acceptance of this technology and the bitcoin industry is the scalability of the first Layer 1 blockchains.
The necessity for more scalable, efficient solutions has resulted in two separate layers: Layer 2 and Layer 3.
Let us look at these blockchain scaling choices together, including their workings, differences, and changes in the blockchain ecosystem from Layer 1 through Layers 2 and 3. Finally, we will choose the most influential Layer 3 projects to watch in 2024.
What Is a Layer 3 Network?
The idea of Layer 3 blockchain networks results from the necessity to create a scalable, interoperable, more safe blockchain architecture. Layer 2 and Layer 3 solutions seek to scale the blockchain network; Layer 3 is more about linking several blockchains and enabling flawless communication between them.
Operating above Layer 2 solutions, Layer 3 networks link several Layer 2 networks and enable transactions across several blockchains, so enabling traditional Layer 2 solutions not achievable.
Hosting a single decentralized application (dApp) per Layer 3 network guarantees high performance free of network congestion and computational bottlenecks, allowing dApps to achieve unprecedented scalability and efficiency.
The scalability of blockchain systems is further enhanced by Layer 3 networks. Higher throughput and transaction processing capabilities are made possible by optimizing consensus mechanisms and data structures. One example is the Xai network, which is based on Arbitrum's Layer-3 and is used to power Web3 games. It's more efficient, scalable, and costs less.
The deployment of dedicated blockchains is made easy with Layer 3 solutions like Arbitrum Orbit, which improves the accessibility and interoperability of the crypto ecosystem.
In addition to providing a safe and customized environment for developers to innovate and grow, they offer strong security features for each hosted dApp and unparalleled customization options.
To give blockchain projects more options for scaling, most Layer 3 solutions are made to be low-cost and high-performance.
Their goal is to make blockchain technology more accessible by finding a middle ground between efficiency and affordability.
In the same way that Layer 2 solutions help to alleviate main blockchain congestion, Layer 3 solutions process specific operations and transactions off-chain. Because of this, transaction fees and network congestion are both reduced, leading to an improved user experience.
It should be noted that Layer 3 solutions are compatible with protocols that operate at Layer 2 and Layer 1 (if EVM compatible). By integrating scalability solutions for Layer 2 with protocols for Layer 3, they can improve interoperability and thus fix crypto space fragmentation.
Layer 2 vs. Layer 3 Networks: the Key Differences
Layer 2 is like the accelerator for the blockchain. Improving transaction speeds and decreasing fees on a single blockchain is the main focus.
To improve its performance without changing the structure of the main chain, this layer operates directly on top of Layer 1, the foundational blockchain. To achieve scalability without sacrificing security or decentralization, innovations such as sidechains and rollups are implemented at the efficiency layer.
Layer 3 is an entirely new animal.
Layer 3 continues the exploration of interconnection and advanced application hosting that Layer 2 began with an emphasis on speed and efficiency.
The blockchain ecosystem starts to look like a complex web of networks at this layer. Layer 3's goal is not to optimize any one blockchain but rather to promote the ecosystem as a whole by facilitating the smooth interaction of all blockchains. It's where blockchain-based apps, which cover a wide range of uses from decentralized finance and gaming to distributed storage, come into play, providing complex solutions and services via their multi-layer operation.
Basically, Layer 2 is all about making one blockchain work better, and Layer 3 is all about making the blockchain work better overall and reaching more people. The technology's potential for decentralized and efficient digital infrastructure can be realized with the help of these layers, which together create a blockchain ecosystem that is more scalable, interconnected, and functional.
Best Layer 3 Network Protocols to Watch in 2024
Now that we’ve shown the key differences between Layer 3 and Layer 2, let’s take a look at most influential Layer 3 blockchains you should be familiar with.
Yellow Network
Yellow Network, a decentralized clearing protocol leveraging state channel technology and chain abstraction, aims to solve liquidity fragmentation issues in crypto trading. Yellow Network is set to transform the crypto trading landscape with its cutting-edge decentralized clearing protocol.
Positioned as a Layer 3 solution Yellow Network lies as a mesh network on top of other blockchains, enabling cross-chain trading. The solution deeply enhances liquidity and efficiency by integrating brokers and crypto exchanges.
This autumn Yellow Network is launching its Locking Campaign, a strategic initiative that will support brokers while engaging early adopters. This effort is designed to drive ecosystem growth and strengthen the brokers who are vital to Yellow Network’s success. Users are encouraged to join the campaign and contribute to the development of the ecosystem.
The Locking program enables participants to earn points that are reflected on a leaderboard, which will determine their rewards in $YELLOW at the Token Launch Event (TLE).
The campaign will run across several seasons, inviting users to participate by locking tokens, performing daily activities and claiming rewards to maximize their points and potential earnings. Daily claim points are boosted by the amount of transactions executed from the Yellow Wallet on a daily basis.
Yellow Network has allocated 5% of its $YELLOW token supply to be distributed among early adopters participating in the Locking campaign.
Cosmos (IBC Protocol)
Layer 3 solutions like the Cosmos Inter-Blockchain Communication (IBC) protocol allow for safe and interoperable communication between various blockchains in the Cosmos network.
By facilitating the easy transfer of data and assets like tokens between interconnected blockchains, it increases the utility of decentralized applications (dApps) by letting them draw on features and resources from different blockchains.
The goal of Cosmos's implementation is to create a "Internet of Blockchains," in which different blockchain networks can function autonomously while freely exchanging data and transferring value.
A more unified and accessible blockchain landscape is fostered by the IBC, which acts as a technical backbone for blockchain interconnectivity. By removing the need for intermediaries like centralized exchanges or bridge mechanisms, it improves scalability, security, and efficiency among blockchain interactions. The interoperability of these networks makes blockchains more user-friendly and dApp-friendly.
Some well-known IBC chains and protocols are Injective, Evmos, Kava, Osmosis, Band Protocol, Axelar Network, and Akash Network.
Polkadot
Polkadot is a well-known name in the Layer 3 community as well. It solidifies its position as a frontrunner in the blockchain industry by encouraging scalability and interoperability across different blockchains, fulfilling its original intent as a multi-chain architecture.
This is accomplished by Polkadot's one-of-a-kind architecture, which comprises a central relay chain and numerous parachains. The relay chain is responsible for governance and security, while the parachains provide tailored blockchain solutions for various uses.
Decentralized applications are made more functional and efficient by this design, which enables data and assets to be transferred seamlessly across different blockchain ecosystems.
The native token of Polkadot, DOT, is essential for bonding, staking, and network governance because it allows stakeholders to be actively involved in running and making decisions about the network.
Highlighting Polkadot's dedication to a decentralized and user-governed infrastructure, the tokenomics of DOT encourage participation and network security.
For blockchain technology to be widely used, it is essential to solve important problems like scalability and interoperability by integrating different blockchains into one ecosystem. By putting an emphasis on a community-driven governance model, Polkadot guarantees that the network adapts and innovates based on user needs. An extensive network of interdependent blockchains can be built with Polkadot's Layer 3 design, which allows for communication between different chains. A star, Acala, Moonbeam, Parallel Finance, OmniBTC, Clover Finance, Kapex Parachain, and Manta Network are some notable instances of Polkadot parachains.
Chainlink
Although sometimes regarded as a Layer 2 solution, Chainlink is an oracle network with Layer 3 properties.
Operating as a distributed oracle network bridging the gap between smart contracts on the blockchain and actual data, Chainlink is one of the most important infrastructure components within the blockchain ecosystem. It offers a safe and consistent means of feeding outside data into the blockchain, so addressing the basic problem of smart contracts' incapacity to access off-chain data.
From DeFi to insurance and gaming, this lets a great range of uses run more smoothly by using accurate and timely knowledge from the outside world. Chainlink's distributed oracle network guarantees that the data supplied is not only accurate but also resistant to manipulation, so safeguarding the integrity and trustworthiness of smart contracts.
LINK, the native token of the Chainlink network, fulfills several roles including data service payment, staking by node operators for network security, and protocol governance participation. LINK encourages the delivery of consistent data and smart contract execution, so building a sustainable ecosystem that benefits members for their efforts.
Chainlink extends the possibilities of dApps by linking smart contracts with outside data sources and actual events.
Among the top blockchain systems using Chainlink's oracle network are Ethereum, Avalanche, Optimism, and Polygon. Certain dApps running on Polkadot and BNB Chain also make advantage of Chainlink's oracle capabilities.
Degen Chain
Designed especially to improve the utility and functionality of the DEGEN token, Degen Chain presents a modern Layer-3 blockchain platform on the Base blockchain.
Degen Chain, distinguished by its quick payment and gaming transaction processing, has attracted interest right away for its explosive development and creative approach to blockchain technology.
Days after its debut, the network reported an astounding 500% increase in the value of the DEGEN token in addition to a transactional volume almost $100 million.
A varied ecosystem of tokens, including Degen Swap (DSWAP) and Degen Pepe (DPEPE), each adding to the platform's dynamic and expanding use, accentuates this strong performance.
Degen Chain promises to keep low transaction costs while solving scalability problems common in Layer-1 networks.
Designed for quick handling of particular tasks, Degen Chain distinguishes itself in payment and gaming transaction handling, so improving user experience and performance.
Degen Chain's Layer-3 capability creates many opportunities for next uses and joint ventures with other blockchain systems, so promoting additional development and creativity. Different Layer-3 capability of the platform, targeted on particular blockchain-based applications, distinguishes it as a potential digital finance and gaming venture.Certain dApps running on Polkadot and BNB Chain also make advantage of Chainlink's oracle services.
Orbs
This is an interesting one.
Underlying a Proof-of- Stake consensus, Orbs distinguishes as a Layer 3 blockchain infrastructure project. It seeks to close the application layer between Layer 1 (L1) and Layer 2 (L2) blockchains.
Developed by a worldwide team reflecting its ambition for broad-reaching blockchain interoperability and improved execution services, the Orbs project, operational since 2017, Through its own ORBS token, it runs on a multi-chain staking model across Ethereum and Polygon, so encouraging flexibility in staking and governance.
Orbs improves the capabilities of smart contracts by positioning itself as a middle execution layer, so enabling sophisticated logic and scripts outside of their inherent capabilities alone.
Pushing the envelope of DeFi innovation and smart contract technology, it presents creative protocols including dLIMIT, dTWAP, and Liquidity Hub. With each of their own governance and economic systems, Orbs' architecture is meant to give dApps a more scalable, efficient, and customizable environment.
This tackles the inherent scalability difficulties with Ethereum and other L1 blockchains.
Working with already-existing Layer 1 (L1) and Layer 2 (L2) solutions—including popular blockchains like Ethereum, TON, Polygon, BNB Chain, Avalanche, Fantom, and more—Orbs deals with.
Arbitrum Orbit
Arbitrum Orbit represents a breakthrough in blockchain technology, enabling the launch of custom chains within the Arbitrum ecosystem. Sounds complicated, but it’s easier than you think.
This framework facilitates the creation of adaptable Layer 2 or Layer 3 chains that can settle to other L2 chains like Arbitrum One, which ultimately settles to Ethereum.
Orbit chains are configurable instances of the Arbitrum Nitro tech stack, designed to cater to specific project requirements.
This flexibility allows for a customized approach to blockchain development, enabling projects to gradually decentralize their applications while adopting Ethereum's base layer properties and security features with greater control over chain governance and functionality.
A key advantage of Arbitrum Orbit is its permissionless deployment capability, allowing developers to launch chains on top of Arbitrum One or Arbitrum Nova, utilizing Arbitrum's Rollup and AnyTrust technology.
This provides maximum flexibility in creating an ideal Orbit chain, whether prioritizing Ethereum-level security with Orbit Rollup chains or enabling ultra-low transaction costs for high-volume applications with Orbit AnyTrust chains.
Moreover, the ability to tailor an Orbit chain with the Arbitrum Nitro core for application-specific needs offers unparalleled scalability, security, and performance optimizations. This paves the way for faster, more cost-effective, and secure deployment options for innovative applications and protocols.