Best Layer-3 Crypto Projects to Watch

Layer-3 blockchains are built on top of Layer-2 solutions, providing additional functionality, interoperability, or performance enhancements to the underlying blockchain infrastructure. Here's an overview of the key aspects and top Layer-3 projects.

Layer-3 blockchains represent a new frontier in the evolution of blockchain technology, building on the foundations of Layer-1 and Layer-2 solutions to deliver enhanced scalability, interoperability, and specialized functionality for decentralized applications (DApps). They're designed to overcome the limitations of previous layers by providing a more adaptable, efficient, and user-friendly blockchain ecosystem.

Blockchain technology has evolved dramatically since the birth of Bitcoin. While the original Bitcoin blockchain was envisioned by its creator, Satoshi Nakamoto, to support fast and decentralized digital payments, Vitalik Buterin made blockchain more versatile with Ethereum. With smart contract functionality, Ethereum and several new-generation blockchain networks have evolved into decentralized computing platforms, supporting dApps across several sectors.

Over the years, there has also been considerable interest in the mainstream adoption of blockchain technology, especially among enterprises. However, one of the most significant drawbacks standing in the way of greater acceptance of this technology and the crypto industry is the scalability of blockchains.

The need for more efficient, scalable solutions has led to the development of various unique layers, namely Layer 2 and Layer 3. This article will explore these blockchain scaling solutions, their operations, differences, and the shift from Layer 1 to Layer 2 and Layer 3 in the blockchain ecosystem.

The concept of Layer 3 blockchain networks comes from the need to build a more secure, interoperable, and scalable blockchain infrastructure. While both Layer 2 and Layer 3 solutions aim to scale the blockchain network, Layer 3 is more about connecting various blockchains and facilitating seamless communication between them.

Layer 3 networks operate on top of Layer 2 solutions, connecting multiple Layer 2 networks and allowing transactions across different blockchains, which traditional Layer 2 solutions do not achieve.

Key Features of Layer 3 Scaling Solutions

Specialized Functionality: Layer-3 networks offer a stage for dApps to perform with unprecedented scalability and efficiency, hosting one dApp per network to ensure high performance without network congestion or computational bottlenecks.
Enhanced Scalability and Efficiency: Layer 3 networks bring even greater scalability to blockchain systems. They achieve this by optimizing consensus mechanisms and data structures, enabling higher throughput and transaction processing capabilities. For instance, the Xai network, built on Arbitrum's Layer-3, powers Web3 games with increased efficiency, scalability, and reduced costs.
Improved Interoperability and Accessibility: Layer-3 solutions like Arbitrum Orbit allow for easy deployment of dedicated blockchains, enhancing the accessibility and interoperability within the crypto ecosystem.
Customization and Security: They offer unparalleled customization options for developers and robust security features for each hosted DApp, creating a secure and tailored environment for innovation and growth.
Low Cost and High Performance: Layer 3 solutions are designed to be low-cost and high-performance, offering blockchain projects more choices for scaling. They aim to strike a balance between efficiency and affordability, making blockchain technology more accessible.
Decongesting the Main Chain: Like Layer 2 solutions, Layer 3 solutions help decongest the main blockchain by processing certain transactions and operations off-chain. This reduces network congestion and transaction fees, improving the user experience.
Enhanced Layering: Layer 3 solutions work in conjunction with Layer 2 protocols. They can resolve fragmentation issues in the crypto space by combining Layer 2 scalability solutions with Layer 3 protocols for enhanced interoperability.
Rollups: Some Layer 3 solutions, like rollups, enable transactions outside the base layer and then upload them to Layer 2 blockchain protocols.

Aspect	Layer 1 Scaling Solutions	Layer 2 Scaling Solutions	Layer 3 Scaling Solutions
Definition	The base layer of a blockchain network	Overlaying network on top of Layer 1	Hosts dApps and executes specific functions
Role	Provides the foundational framework	Enhances scalability and adds features.	Hosts real-world applications and executes tasks
Examples	PoS consensus mechanism, sharding	Lightning Network, Optimistic rollups, ZK rollups	DeFi apps, games, etc.
Functionality	Defines basic blockchain operations	Processes operations outside of Layer 1	Executes tasks specific to applications
Purpose	Security and basic blockchain functionality	Scalability and additional features	Hosting applications and specialized functions
Interactions	Primarily with Layer 1	Interaction between Layer 1 and Layer 2	Interaction with applications and Layer 2
Examples	Ethereum 2.0, Bitcoin’s SegWit	Bitcoin Lightning Network, Arbitrum, Optimism	Polkadot, Cosmos, Chainlink

Layer 2 vs. Layer 3 Networks: Unraveling the Differences

Blockchain technology's journey toward optimization has led to the development of Layer 2 and Layer 3 networks, each addressing unique facets of blockchain's scalability and interoperability problems.

Layer 2 Networks: Think of Layer 2 as a turbocharger for the blockchain. It's all about supercharging transaction speeds and slashing fees on a singular blockchain. This layer acts as a booster, operating directly atop Layer 1 (the foundational blockchain) to enhance its performance without altering the main chain's structure. It's the efficiency layer where innovations like rollups and sidechains come into play, aiming to scale up without compromising security or decentralization.
Layer 3 Networks: Layer 3 takes the baton from Layer 2's focus on speed and efficiency, venturing into the realm of interconnectivity and advanced application hosting. This layer is where the blockchain ecosystem begins to resemble a sophisticated web of networks. Layer 3's mission is to foster a seamless interplay among blockchains, enhancing the ecosystem at large rather than optimizing a single blockchain. It's the domain of blockchain-based applications—ranging from DeFi and gaming to distributed storage—operating across layers to offer nuanced solutions and services.

Layer 3 vs. Layer 1 Blockchains

The leap from Layer 1 to Layer 3 in the blockchain stack introduces a shift from foundational infrastructure to advanced application and interoperability:

Base Layer vs. Advanced Layer: Layer 1 is the bedrock of any blockchain network, encapsulating the core functionalities, consensus mechanisms, and security protocols. It's the original blockchain where everything begins. Layer 3, on the other hand, represents an evolution towards specialized functionalities built on the layers below. It's akin to moving from constructing the foundation and walls of a building (Layer 1 and Layer 2) to focusing on the interior design and connections between rooms (Layer 3).
Scaling Capabilities and Execution: Layer 1 provides the fundamental architecture, but its scalability is often limited. Enter Layer 3, which introduces solutions to transcend these limitations by enabling cross-chain interoperability and more complex applications. This layer does not merely scale; it innovates by allowing disparate blockchains to communicate and collaborate, thereby multiplying the potential applications and services that can be built within the blockchain ecosystem.

In essence, Layer 2 is about amplifying the performance of a single blockchain, and Layer 3 is about expanding the blockchain's capabilities and reach. Together, these layers contribute to a more scalable, interconnected, and functional blockchain ecosystem, enabling the technology to fulfill its promise of decentralized and efficient digital infrastructure.

Here are some notable Layer 3 blockchains, their key features, benefits, and use cases:

Cosmos (IBC Protocol)

The Cosmos Inter-Blockchain Communication (IBC) protocol is a revolutionary Layer 3 solution that enables interoperability and secure communication across different blockchains within the Cosmos network. It allows the smooth exchange of information and assets, such as tokens, between connected blockchains, thereby enhancing the potential of decentralized applications (dApps) by enabling them to utilize functionalities and assets from various blockchain platforms. This implementation is a significant stride towards achieving Cosmos's vision of an "Internet of Blockchains," where diverse blockchain networks can operate independently yet communicate and transfer value freely among each other.

The IBC serves as a technical backbone for blockchain interconnectivity, fostering a more unified and accessible blockchain landscape. It enhances efficiency, security, and scalability by enabling blockchains to interact without relying on centralized exchanges or bridge mechanisms. This interconnectivity enhances the usability of blockchain networks and supports dApps. Popular IBC chains and protocols include Akash Network, Axelar Network, Kava, Osmosis, Band Protocol, Evmos, Fetch.AI, and Injective.

Polkadot

Polkadot, envisioned as a multi-chain architecture, establishes itself as a key player in the blockchain space by fostering interoperability and scalability among various blockchains. It achieves this through its unique structure consisting of a central relay chain and multiple parachains, where the relay chain provides security and governance, and the parachains offer customized blockchain solutions for diverse applications. This design allows for the seamless transfer of data and assets across different blockchain ecosystems, enhancing the functionality and efficiency of decentralized applications. Polkadot's native token, DOT, plays a crucial role in network governance, staking, and bonding, enabling stakeholders to participate actively in the network's operation and decision-making process. The tokenomics of DOT incentivize participation and network security, highlighting Polkadot's commitment to a decentralized and user-governed infrastructure.

Its ability to connect disparate blockchains into a unified ecosystem addresses critical challenges such as interoperability and scalability, which are essential for the widespread adoption of blockchain technology. Polkadot's emphasis on a community-driven governance model ensures that the network evolves in response to its users' needs, promoting innovation and adaptability. Polkadot's Layer 3 architecture facilitates cross-chain communication, creating a robust ecosystem of interconnected blockchains. Notable examples of Polkadot parachains include Acala, Moonbeam, Parallel Finance, OmniBTC, Astar, Clover Finance, Kapex Parachain, and Manta Network.

Chainlink

While often considered a Layer 2 solution, Chainlink has Layer 3 characteristics as an oracle network. Chainlink stands out as a pivotal infrastructure within the blockchain ecosystem, operating as a decentralized oracle network that bridges the gap between smart contracts on the blockchain and real-world data. It addresses the fundamental challenge of smart contracts' inability to access off-chain data by providing a secure and reliable way to feed external data into the blockchain. This enables a wide array of applications, from DeFi to insurance and gaming, to function more effectively by leveraging accurate and timely information from the external world. The decentralized nature of Chainlink's network of oracles ensures that the data provided is not only accurate but also resistant to manipulation, preserving the integrity and trustworthiness of smart contracts.

The native token of the Chainlink network, LINK, serves multiple purposes, including payment for data services, staking by node operators for network security, and participation in the protocol's governancel. LINK incentivizes the provision of reliable data and execution of smart contracts, creating a sustainable ecosystem that rewards participants for their contributions. Chainlink connects smart contracts with external data sources and real-world events, expanding the capabilities of dApps. Some leading blockchain networks that leverage Chainlink’s oracle network include Ethereum, Avalanche, Optimism, and Polygon. Some dApps operating on BNB Chain and Polkadot also leverage Chainlink’s oracle services.

Degen Chain

Degen Chain emerges as a cutting-edge Layer-3 blockchain platform on the Base blockchain specifically designed to enhance the functionality and utility of the DEGEN token. Characterized by its swift and efficient processing of payments and gaming transactions, Degen Chain has quickly garnered attention for its rapid growth and innovative approach to blockchain technology. Within days of its launch, the network recorded an impressive transactional volume nearing $100 million, alongside a remarkable 500% surge in the DEGEN token's value. This robust performance is further complemented by a diverse ecosystem of tokens, including Degen Swap (DSWAP) and Degen Pepe (DPEPE), each contributing to the platform's dynamic and expanding utility.

Degen Chain promises to solve scalability issues prevalent in Layer-1 networks while maintaining low transaction costs. Tailored for efficient processing of specific tasks, Degen Chain stands out for its ability to handle payment and gaming transactions swiftly, enhancing user experience and performance. The Layer-3 functionality of Degen Chain opens up numerous possibilities for future applications and collaborations with other blockchain networks, potentially driving further growth and innovation. The platform's distinct Layer-3 functionality, focused on specific blockchain-based applications, sets it apart as a promising venture in the realm of digital finance and gaming.

Explore more projects in the Base ecosystem.

Arbitrum Orbit

Arbitrum Orbit emerges as a pivotal innovation in the blockchain space, providing a pathway for launching new chains within the Arbitrum ecosystem. This framework enables the creation of customizable Layer 2 (L2) or Layer 3 (L3) chains that can settle to other L2 chains like Arbitrum One, which, in turn, settles to Ethereum. Arbitrum Orbit chains are deployable and configurable instances of the Arbitrum Nitro tech stack, designed to meet the exact use-case and business needs of various projects. This versatility allows for a tailored approach to blockchain development, allowing projects to progressively decentralize their applications and adopt Ethereum's base layer's properties and security assumptions with a higher degree of control over the chain's features and governance.

One of the key strengths of Arbitrum Orbit is its permissionless deployment capability, allowing developers to launch Orbit chains on top of Arbitrum One or Arbitrum Nova, leveraging Arbitrum’s Rollup and AnyTrust technology. This ensures maximum flexibility in building an ideal Orbit chain, whether aiming for Ethereum-level security with Orbit Rollup chains or enabling ultra-low transaction costs for high-volume applications with Orbit AnyTrust chains. Furthermore, the ability to customize an Orbit chain with the Arbitrum Nitro core for application-specific needs offers unprecedented scalability, security, and performance optimizations. This opens up a world of faster, cheaper, and more secure deployment possibilities for new applications and protocol innovations.

Superchain

Superchain Network, also known as the "Open Index Protocol," is a blockchain-based protocol focusing on decentralized data indexing and organization. Superchain provides a decentralized indexing solution for blockchain data. It organizes on-chain data in a manner that promotes decentralization and accessibility.

The platform is designed to align with the principles of Web3, which emphasizes decentralized and open systems. Superchain aims to shift away from the centralized models of web2 towards decentralized design. Superchain's primary use case revolves around organizing and indexing on-chain data, which can have applications in various sectors, including DeFi, NFTs (Non-Fungible Tokens), and more.

Orbs

Orbs stands out as a Layer 3 blockchain infrastructure project, underpinned by a Proof-of-Stake consensus, aiming to bridge the gap between Layer 1 (L1) and Layer 2 (L2) blockchains and the application layer. By situating itself as an intermediary execution layer, Orbs enhances smart contracts' capabilities, facilitating complex logic and scripts beyond the native functionalities of smart contracts alone. It introduces innovative protocols such as dLIMIT, dTWAP, and Liquidity Hub, pushing the boundaries of DeFi innovation and smart contract technology. Orbs' architecture is designed to provide dApps with a more scalable, efficient, and customizable environment, each with its own governance and economic systems. This addresses the scalability challenges inherent in Ethereum and other L1 blockchains.

The Orbs project, operational since 2017, is developed by a global team, reflecting its ambition for wide-reaching blockchain interoperability and enhanced execution services. It operates on a multi-chain staking model across Ethereum and Polygon, promoting flexibility in staking and governance through its native ORBS token. Orbs works with existing Layer 1 (L1) and Layer 2 (L2) solutions, including popular blockchains like Ethereum, TON, Polygon, BNB Chain, Avalanche, Fantom, and more. It operates as a Layer 3 blockchain, utilizing its PoS consensus mechanism for efficient and secure transaction processing.

zkHyperchains

zkHyperchains, introduced by zkSync, represent a new tier of blockchain technology that enhances scalability and interoperability within the Ethereum ecosystem. Utilizing the ZK Stack, a modular framework, zkHyperchains allow for the creation of custom blockchains (Hyperchains) that are ZK-powered, offering developers the sovereignty to tailor these chains to specific applications, whether they're Layer 2 or Layer 3 solutions. These composable and interoperable Hyperchains enable seamless and nearly instant transfers of liquidity and other interactions between protocols within the system, aiming to address the limitations of current L1 blockchains. The focus on recursive scaling and the use of zero-knowledge proofs enables a scalable, secure network capable of supporting a wide range of decentralized applications with specific requirements around privacy, speed, and data availability, making it an attractive platform for games, social networks, and financial institutions.

zkHyperchains attempts to solve the scalability and interoperability challenges that plague existing blockchain infrastructures. By batching transactions into a ZK proof and then further aggregating these proofs, zkHyperchains can theoretically meet any level of demand. This architecture not only promises enhanced scalability but also ensures the integrity and security of transactions, thanks to the inherent properties of zero-knowledge proofs. The open-source nature of the ZK Stack and the capacity for developers to create and deploy Hyperchains permissionlessly introduce a new level of flexibility and customization in blockchain development.

Explore the top Ethereum ZK rollup projects.

Layer 3 networks herald a new era of blockchain functionality, where the focus shifts from simply scaling transaction throughput to achieving a rich tapestry of interconnected applications and services. This layer aims to bridge the gaps between various blockchains, creating a unified and robust ecosystem capable of supporting a diverse range of applications, from finance to gaming and beyond. Through Layer 3, the blockchain world edges closer to a future where decentralized technology is seamlessly integrated into everyday digital interactions, offering enhanced scalability, interoperability, and application-specific functionalities.