What is a Layer-3 Blockchain?

Layer 3 is not merely another layer built on top of Layer 2. Instead, it represents an aggregation philosophy aimed at addressing several significant challenges the current Layer 2 ecosystem faces. Unlike Layer 2 solutions, which primarily focus on scalability by inheriting some guarantees from a Layer 1 blockchain (such as Ethereum), Layer 3 seeks to enhance interoperability, reduce fragmentation, and increase customizability among Layer 2 networks.

In this article, we discover what a Layer 3 blockchain is and how it addresses interoperability, fragmentation, and customizability within Layer 2 networks.

What is a Layer 3 Blockchain?

Layer 2 blockchains, such as Arbitrum, Optimism, ZKsync, and Polygon, are designed to offload execution from the base Layer 1 blockchain to achieve higher throughput and lower transaction costs. These Layer 2 networks operate independently and often in isolation, leading to several bottlenecks, including heterogeneity, fragmentation, and communication inefficiencies.

Layer 3, therefore, is not about building another scalability layer on top of Layer 2. Instead, it aims to create a cohesive environment where multiple Layer 2 solutions can interact seamlessly, share resources, and operate as a unified network rather than disparate entities. It is achieved through mechanisms that enable efficient communication, cross-chain smart contract calls, and resource sharing between different Layer 2 chains.

In essence, Layer 3 acts as an integration layer between Layer 1 and 2, facilitating smoother interactions and interoperability between various Layer 2 networks. It helps to address issues like fragmentation of liquidity, lack of communication, and the inefficient use of Layer 1 space, ultimately leading to a more robust and integrated blockchain ecosystem.

What Does Layer 3 Solve?

Layer 3 solutions address several critical challenges currently hampering the effectiveness and efficiency of Layer 2 ecosystems. These challenges include:

1. Heterogeneity: The Layer 2 ecosystem on Ethereum comprises numerous independent chains, each with its unique qualities and limitations. This diversity leads to duplication of efforts, as similar applications need to be deployed on multiple Layer 2 networks, resulting in minimal innovation. Layer 3 aims to unify these heterogeneous Layer 2 networks, allowing them to share resources and functionalities, thereby fostering greater innovation and efficiency.
2. Fragmentation: The separation of liquidity and users across multiple Layer 2 networks results in inefficiencies and stifles market-making and innovation. In DeFi, for instance, developers must support the same applications across different networks, which is resource-intensive. Layer 3 seeks to reduce fragmentation by enabling seamless interoperability and communication between Layer 2 networks, allowing liquidity and user bases to consolidate more efficiently.
3. Lack of Communication: Currently, Layer 2 networks rely on third-party bridges to facilitate communication and token transfers, which introduces trust issues and breaks the uniformity of the ecosystem. Layer 3 solutions aim to provide native communication protocols that enable direct interactions between Layer 2 networks, thereby enhancing security and reducing reliance on external intermediaries.
4. Inefficient Use of Layer 1 Space: Independent operation of Layer 2 networks results in separate submission of block information and proofs to the Ethereum Layer 1, leading to congestion and high storage costs. Layer 3 aims to optimize this process by aggregating these submissions, thereby reducing congestion and improving the overall efficiency of Layer 1 utilization.
5. Lack of Customizability: Different DeFi applications have varying requirements for customizability, such as proprietary sequencers or data availability solutions. A single Layer 2 blockchain cannot cater to all these diverse needs. Layer 3 provides a flexible framework that supports various application designs, enabling developers to implement custom solutions tailored to their specific requirements.

Layer 3 solutions pave the way for a more interconnected, efficient, and innovative blockchain ecosystem. Projects like Polygon, ZKsync, Optimism and Arbitrum are actively developing Layer 3 solutions to create ecosystems of Layer 2 chains that can communicate and operate seamlessly, thus embodying the aggregation philosophy that defines Layer 3.

The following sections will cover their Layer 3 designs.

ZKsync - ZKchains 

ZKchains consists of multiple parallel instances of zkEVM that achieve consensus and finality on Ethereum. These chains leverage a zero-knowledge proving mechanism developed by ZKsync to inherit security and finality from Ethereum. ZKchains facilitate seamless interactions across different rollups within the elastic chain ecosystem, utilizing Hyperbridges to enable efficient communication and asset transfer between chains.

The image above visualizes the interaction between different chains in the ZKsync ecosystem. The grey lines show proofs, while the orange lines show hyperbridges.

Hyperbridges and Their Functionality

Hyperbridges are integral to the functionality of ZKchains, acting as smart contracts that verify transactions across chains using Merkle proofs. Hyperbridges rely on a shared bridge contract operating in layer 1. This bridge contract receives proofs from all connected ZKchains, acting as the common ground for exchanging critical cross-chain information while bridging tokens or data. Here's how they work:

1. Initiation: A transaction on a ZKchain intended for another chain is initiated.
2. Settlement on L1: The sending ZKchain compiles a cryptographic proof of the transaction and settles it on Ethereum's L1, anchoring its validity.
3. Transaction Root Update: Ethereum updates the Transaction Root, reflecting all transactions across the ecosystem.
4. Root Importation: The receiving ZKchain imports this updated Transaction Root through its consensus mechanism.
5. Transaction Submission: A relayer submits the transaction along with a Merkle Proof to the receiving ZKchain.
6. Verification and Execution: The receiving ZKchain verifies and executes the transaction, compensating the relayer.
7. Proof Settlement: The receiving ZKchain settles its proof on L1, conclusively validating the transaction.

ZKchains Proof Aggregation

Aggregation is a critical component for improving the scalability of inter-blockchain communication. Proof aggregation enables multiple layer 2 networks to settle on layer 1 with a combined proof, reducing the load on layer 1 and taming the storage fees the layer 2 chains pay Ethereum.

Ethereum, as the settlement layer, also enables cross-chain communication. When multiple chains aggregate their proof in a single Ethereum transaction, one chain can use the proof to prove an event in another chain, facilitating cross-chain token and message transfers.

ZKsync proposes multiple proof aggregation techniques in its documentation:

• Simple proof aggregation collects the proofs at specific intervals and submits them to the shared bridge contract on layer 1. This system is simple, but the cross-chain communication speed is limited.
• Layered proof aggregation utilizes an intermediary layer 2 chain to settle proofs. This architecture creates a three-layer blockchain hierarchy where chains settling on the same layer 2 communicate swiftly. Still, chains settling on different layer 2s must wait for Ethereum's final settlement.
• Layered aggregation combines the previously mentioned concepts by creating a three-layer hierarchy where all L3 chains settle on one layer 2.

Layered aggregation allows ZKchains to act as Layer 3 (L3) networks, settling their proofs onto an intermediary Layer 2 (L2) ZKchain. This structure has the following characteristics:

• Faster Inter-L3 Messaging: L3s on the same L2 can communicate more swiftly and cheaply.
• Atomic Transactions: Transactions across L3s can be made atomic through the L2, enhancing transaction reliability.
• Increased Reversion Risk: If the L2 faces issues or needs to revert, all dependent L3s could be affected.

Layered aggregation is more scalable and efficient because it focuses solely on essential functionalities and maintains a lightweight consensus mechanism, reducing computational overhead.

Key Features of ZKchains

ZKchains creates an architecture with the following essential features:

1. Modularity: ZKchains offer a high degree of modularity, allowing developers to customize various components of their blockchain systems while maintaining core standards necessary for network security and interoperability. The different sequencer and data availability options include:
2. Sequencer Options:
   • Centralized Sequencer: Quick transaction confirmation but requires trust in the operator.
   • Decentralized Sequencer: Uses a consensus algorithm, enhancing security and decentralization but potentially increasing latency.
   • Priority Queue: Direct transaction submission via L2 or L1 priority queue, enhancing censorship resistance.
   • External Protocol: Integration with external sequencing protocols for further flexibility.
3. Data Availability Options:
   • ZK-Rollup: Publishes storage changes as calldata on Ethereum L1, benefiting from Ethereum's security.
   • zkPorter: Lower transaction costs but higher security risks, with options to use external DA solutions.
   • Validium: Controlled DA for privacy, ideal for enterprise applications.
   • Based zkRollup: Full transaction inputs publication for trustless state verification.
   • zkRollup (Self-hosted): Users manage their own data, enhancing privacy and reducing on-chain data requirements.

Addressing Layer 3 Bottlenecks: 

ZKchains effectively address the key bottlenecks Layer 3s aims to solve:

1. Heterogeneity: By providing a unified framework for different Layer 2 chains to interact and share resources, ZKchains reduce duplication and foster innovation.
2. Fragmentation: Hyperbridges facilitate seamless asset and data transfer between chains, reducing liquidity fragmentation.
3. Lack of Communication: Native communication protocols enable direct interactions between Layer 2 networks, enhancing security and reducing reliance on external bridges.
4. Inefficient Use of L1 Space: Aggregated submissions of block information reduce congestion and storage costs on Ethereum L1.
5. Lack of Customizability: ZKchains' modular approach supports diverse application designs, accommodating various needs for customizability.

Privacy Options:

ZKchains offer robust privacy features through:

• Validium Mode: Provides inherent privacy as long as the operator keeps data confidential.
• Privacy Protocols Integration: Supports specialized L3 protocols like Aztec or Tornado for user-level privacy.
• Self-hosted Rollups: Users manage their data and confirm state transitions off-chain, enhancing privacy and scalability.

By integrating these features, ZKchains provides a scalable, interoperable, and customizable blockchain environment that addresses critical issues the current Layer 2 ecosystem faces.

Polygon Supernets

Polygon 2.0 represents a strategic redesign of the Polygon PoS chain, transitioning it from a sidechain to a zkEVM Validium chain. The upgrade introduces the concept of Polygon Supernets, customizable layer 2 blockchains that settle on the Polygon chain. The Polygon 2.0 architecture is built on four distinct layers: the Staking Layer, Interop Layer, Execution Layer, and Proving Layer, each playing a crucial role in the operation and scalability of the network.

What are Polygon Supernets? 

Polygon Supernets are third-party chains developed using the Polygon Chain Development Kit (CDK). They are designed to offer enhanced scalability, interoperability, and customization, allowing developers to create bespoke blockchain solutions tailored to specific use cases. Supernets operate within the Polygon ecosystem, leveraging the network's advanced infrastructure to deliver efficient and secure blockchain services.

How do Supernets Work?

Polygon Supernets are developed using the Polygon Chain Development Kit (CDK), a modular and open-source codebase. The CDK allows developers to launch ZK-powered Ethereum layer 2 chains that are inherently interoperable with the rest of the Polygon Network. The key components and benefits of the Polygon CDK include:

• Data Availability Options: Developers can choose between rollup mode and Validium mode.
• Execution Environment: Options include zkEVM or MidenVM.
• Sequencers: Choice between centralized or decentralized sequencers.
• Token Customization: Ability to select a native or custom gas token for the chain.

How Supernets Utilize Polygon Architecture: 

Supernets leverage the various layers of the Polygon 2.0 architecture to function efficiently:

• Staking Layer: Supernets are secured by the POL token-powered Polygon PoS chain, rather than Ethereum, providing faster and cheaper transactions.
• Interop Layer: Facilitates seamless cross-chain communication and interoperability within the Polygon ecosystem. Aggregators in the Interop Layer accept ZK proofs and message queues from Polygon chains, aggregate these proofs, and submit them to Ethereum for verification.
• Execution Layer: This is where the smart contracts are executed, state transitions are calculated, and blocks are produced. The Execution Layer includes components such as the P2P layer, consensus, mempool, database, and witness generator.
• Proving Layer: Responsible for generating and verifying ZK proofs, implementing ZK state machines, and ensuring efficient cross-chain communication.

Importance of the Interop Layer:

The Interop Layer is crucial for the functionality of Polygon Supernets, as it ensures seamless cross-chain communication and aggregation of ZK proofs. It abstracts the complexity of cross-chain interactions, enabling fast atomic cross-chain transactions and unified liquidity management across the Polygon ecosystem. Aggregators play a vital role by aggregating ZK proofs into a single proof for submission to Ethereum, significantly reducing gas consumption and ensuring global consistency.

Key Features of Polygon Supernets

• Secured with POL: Polygon Supernets are secured by the POL token-powered Polygon PoS chain rather than Ethereum, providing several benefits:
  • Faster and Cheaper Transactions: Using the Polygon PoS chain results in quicker and more cost-effective transactions.
  • Trade-offs: While it offers efficiency, it may not be as secure and decentralized as using Ethereum directly, as security depends on the Polygon validators.
• Modularity: The modularity of Polygon Supernets allows for significant customization:
  • Data Availability: Developers can choose between rollup mode (zk-Rollup) and Validium mode, balancing between security and cost-efficiency.
  • Execution Environment: Options to use zkEVM for standard ZK-rollup functionality or MidenVM for custom execution environments.
  • Sequencers: Flexibility to implement either centralized sequencers for faster transaction processing or decentralized sequencers for enhanced security and decentralization.
  • Native Gas Token Customization: Ability to select or create custom gas tokens for transactions within the Supernet.

Addressing Layer 3 Bottlenecks: 

Polygon Supernets effectively address several Layer 3 bottlenecks:

• Heterogeneity: By providing a unified framework for different Layer 2 chains, Supernets reduce redundancy and foster innovation.
• Fragmentation: The Interop Layer and shared bridge infrastructure reduce liquidity fragmentation and enhance cross-chain interactions.
• Lack of Communication: Native communication protocols enable direct and secure cross-chain interactions without relying on third-party bridges.
• Inefficient Use of L1 Space: Aggregated proof submissions minimize congestion and storage costs on Ethereum L1.
• Lack of Customizability: The modular approach of the CDK allows developers to tailor blockchain solutions to specific needs, enhancing flexibility and innovation.

By leveraging these features, Polygon Supernets provides a robust, scalable, and interoperable framework for developing advanced blockchain solutions within the Polygon ecosystem.

Optimism Superchains

The Optimism network recently completed its Bedrock upgrade, marking a significant step towards achieving its vision of creating a Superchain. The Bedrock upgrade introduces multiple enhancements, including reduced gas fees, faster transaction confirmations, and improved modularity, which are foundational for building a scalable and interconnected network of L2 chains. These improvements facilitate the development and deployment of OP Chains, which are integral components of the Superchain​.

What are Optimism Superchains? 

Optimism Superchains are networks of Layer 2 chains, known as OP Chains, that share a common security framework, communication layer, and open-source technology stack. Unlike traditional multi-chain systems, OP Chains within the Superchain are standardized and interchangeable, allowing developers to build applications that operate seamlessly across the entire Superchain without concern for the underlying chain specifics. This standardization and interoperability aim to enhance the overall user and developer experience by simplifying cross-chain interactions and reducing complexities.

How Do Superchains Work?

Superchains are developed using the OP Stack, a modular and extensible software suite that supports creating customized Layer 2 networks. Key components of the OP Stack include:

• Data Availability: The Bedrock upgrade enhances data availability by optimizing gas costs and reducing the need for extensive on-chain data storage. The Superchain can use Plasma protocols for third-party data availability, which commit transaction data off-chain but ensure it is accessible through challenge mechanisms, providing scalability and cost efficiency​.
• Sequencers: The OP Stack allows for modular sequencing, enabling each OP Chain to configure its sequencer address. This modularity supports various sequencing protocols, such as round-robin, consensus-based, or FIFO sequencing, promoting decentralization and flexibility​​.
• Execution Environment: The OP Chains operate in an environment that supports EVM equivalence, ensuring compatibility with existing Ethereum infrastructure and allowing developers to leverage familiar tools and frameworks​​.
• Fault Proof System: The Bedrock upgrade introduces Cannon, a next-generation fault-proof system designed to enhance security and decentralization. Cannon supports both fault proofs and, eventually, validity proofs, enabling secure and efficient transaction verification across the Superchain​.

Addressing Key Layer 3 Bottlenecks:

Optimism Superchains effectively address several Layer 3 bottlenecks:

• Heterogeneity: By standardizing OP Chains, Superchains reduce redundancy and simplify the development process, fostering innovation and efficiency.
• Fragmentation: Shared data availability and interoperability layers minimize liquidity fragmentation and enhance cross-chain interactions.
• Lack of Communication: Native cross-chain communication protocols enable secure and direct interactions between OP Chains, eliminating the need for third-party bridges.
• Inefficient Use of L1 Space: Aggregated proof submissions and optimized data availability reduce congestion and storage costs on Ethereum L1.
• Lack of Customizability: The modular OP Stack allows developers to tailor their OP Chains to specific requirements, enhancing flexibility and adaptability​​.

By leveraging these features, Optimism Superchains offers a robust, scalable, and interoperable framework for building advanced blockchain solutions within the Optimism ecosystem.

Arbitrum Orbit

Arbitrum Orbit is a permissionless framework for launching customizable dedicated chains, which can operate as layer 2 chains that settle directly on Ethereum or as layer 3 chains that can settle on any Arbitrum Layer 2, such as Arbitrum One. 

Orbit chains use the Arbitrum Nitro Tech Stack, an updated component collection that improves its classic architecture. Nitro represents a significant advancement in the Arbitrum technology stack, superseding the original Arbitrum Classic. Nitro's core enhancements stem from migrating to WebAssembly (Wasm) from the Arbitrum Virtual Machine (AVM). 

This change allows Nitro to integrate Geth directly within its architecture, offering several benefits such as lower fees, data compression, and closer EVM compatibility. The shift to Nitro facilitates a more efficient execution environment, reducing costs for end users and simplifying the system's overall complexity by leveraging the widely used Geth software.

What is Orbit?

Arbitrum Orbit allows developers to create their own Arbitrum Rollup or AnyTrust chains. These chains can be configured with various components such as throughput, privacy, gas tokens, governance, precompiles, and data availability layers. Orbit provides a highly customizable and decentralized framework, leveraging the robust features of the Arbitrum Nitro tech stack, including interactive fraud proofs, advanced compression, and EVM+ compatibility via Stylus​.

How Does it Work?

Orbit chains are developed using the Arbitrum Nitro tech stack, enabling the creation of either Layer 2 chains that settle on Ethereum or Layer 3 chains that settle on any Ethereum L2, such as Arbitrum One. This flexibility allows developers to tailor their chains to specific use cases and business needs.

Key Features:

• Data Availability: Orbit chains can operate in Rollup mode, where raw transaction data is stored on Ethereum L1, or AnyTrust mode, which uses a Data Availability Committee (DAC) to store transaction data, expediting settlement and reducing costs by introducing an additional security assumption​​.
• Account Abstraction: Orbit chains support account abstraction, allowing developers to accurately model and predict business costs and experiment with traditionally cost-prohibitive mechanisms like transaction fee subsidization​.
• Custom Protocol Logic and Gas Token: Developers can modify the logic of their chain's settlement, execution, or governance protocols and use alternative ERC-20 tokens as native gas tokens, facilitating seamless integration with the app's ecosystem​​.
• Cross-Chain Communication: Orbit chains can communicate with each other, although this functionality is still under development. This feature will enable a more interconnected ecosystem of Orbit chains, enhancing their overall utility and scalability​.

Addressing Key Layer 3 Bottlenecks

• Heterogeneity: Orbit chains provide a customizable framework that reduces redundancy by allowing tailored chain configurations, promoting innovation and efficiency by enabling developers to create unique solutions without duplicating efforts​.
• Fragmentation: By offering both Rollup and AnyTrust modes, Orbit chains can reduce liquidity fragmentation, as chains can be tailored to specific needs, ensuring that resources are used more efficiently across the network​​.
• Lack of Communication: While cross-chain communication is a planned feature, its current unavailability means that Orbit chains might initially operate in isolation. However, the upcoming interop features will eventually allow seamless cross-chain interactions, addressing this bottleneck​.
• Inefficient Use of L1 Space: Orbit chains can optimize data availability through Rollup and AnyTrust modes, reducing the congestion and storage costs on Ethereum L1, making the overall network more efficient and scalable​​.
• Lack of Customizability: Orbit provides extensive customization options, allowing developers to tailor every aspect of their chain, from data availability to gas tokens and protocol logic. This high level of customizability ensures that Orbit chains can meet diverse and specific requirements, promoting broader adoption and innovation​.

Arbitrum Orbit, built on the advanced Arbitrum Nitro tech stack, addresses many of the key challenges faced by Layer 3 solutions, providing a robust and flexible framework for the next generation of scalable, secure, and customizable blockchain networks.

Final Thoughts: What Layer 3 Means for Web3's Future

The evolution of blockchain technology continues to shape the future of decentralized finance (DeFi) and the broader Web3 ecosystem. The rise of Layer 3 solutions, building upon the solid foundations of Layer 2 networks, signifies a transformative shift in how decentralized applications (DApps) are developed, deployed, and utilized.

Here's a look at how Layer 3 solutions are poised to influence the future of Web3.

1. Layer 3 Compliments Appchains: 

The appchain thesis envisions a future where each DeFi application operates on a dedicated blockchain tailored to its specific needs. Layer 3 solutions support this vision by enhancing customizability and interoperability. These advanced layers allow developers to fine-tune their blockchain environments to meet precise requirements, ensuring optimal performance and security for each application. This bespoke approach not only boosts the efficiency of individual dApps but also fosters a more diverse and innovative blockchain ecosystem.

2. Efficient Use of On-chain Resources: 

Layer 3 solutions enable applications to utilize blockchain real estate more efficiently. Low-stakes applications, such as gaming, social networks, and metaverse projects, can migrate to Layer 3 chains, offering lower costs and adequate security. This stratification ensures that high-stakes applications, like DeFi, remain on Layer 2, where they can leverage higher security and robustness. This division of labor optimizes the use of blockchain resources, ensuring that each application operates in an environment best suited to its requirements.

3. Horizontal Scalability: 

The introduction of Layer 3 solutions drastically reduces throughput bottlenecks by enabling horizontal scalability. Instead of a single chain struggling to handle increasing loads, new chains can be created as needed, each with its own dedicated resources. This approach ensures that the blockchain ecosystem can grow organically and sustainably, with storage and computational power added incrementally as demand increases. Horizontal scalability allows the blockchain to support many users and applications without compromising performance or security.

4. Chain Abstraction: 

With improved cross-chain communication, the specific blockchain on which an application operates will become less relevant to users. Enhanced interoperability allows for seamless interactions between different chains, abstracting the complexities of the underlying infrastructure. Users will interact with dApps through intuitive interfaces, with the routing of information handled automatically in the background. This abstraction simplifies the user experience, making blockchain technology more accessible and user-friendly.

Impact on DeFi and Blockchain: Layer 3 technologies are set to revolutionize the DeFi landscape by offering unprecedented customizability, efficiency, and scalability. Layer 3 solutions will enable more sophisticated and diverse dApps to emerge by allowing applications to operate in specialized environments, leading to a richer ecosystem of services, catering to a broader range of use cases and user needs.

Moreover, the efficient use of on-chain resources and horizontal scalability will ensure that the blockchain infrastructure can support the growing demand for decentralized services. As cross-chain communication improves, users will enjoy a seamless and cohesive experience, regardless of the underlying technology.

In conclusion, Layer 3 solutions represent a significant leap forward for blockchain technology, paving the way for a more efficient, scalable, and user-friendly Web3. By complementing the appchain thesis, optimizing resource use, enabling horizontal scalability, and abstracting the complexities of blockchain interactions, Layer 3 is poised to play a crucial role in the future of decentralized applications and the broader digital economy.