L1 and L2 are crowded, what other L3 projects are worth following?

Original author: 0X STRUBE

Original text translation: DeepTech TechFlow

In the past few years, Ethereum has made significant progress on its roadmap, completing the transition from Proof of Work (PoW) to Proof of Stake (PoS), the so-called “The Merge”. Recently, the “Dencun” upgrade has been carried out, including proto-danksharding, making Layer 2 transactions cheaper.

(Source: growthepie)

Before Dencun, the transaction cost of Layer 2 was about $0.50, but now the transaction cost on most Layer 2 chains is only a few cents. This change has greatly promoted the expansion of new applications on Ethereum.

(Source: Artemis)

Since Dencun's upgrade, the daily trading volume of Arbitrum and Base has exceeded that of the Ethereum mainnet, and this trend remains unchanged. Although there is still a lot of work to be done on Ethereum's scalability, this is an important step in the right direction, with significant improvements in infrastructure since the last cycle. In recent months, on-chain activity and trading volume on Arbitrum and Base have increased, possibly just the tip of the iceberg for the upcoming cycle.

Layer 3 Expansion

The initial versions of Ethereum rollups are Optimism and Arbitrum, both of which are optimistic rollups. Currently, there are more and more Layer 2 optimistic and zero-knowledge rollups, most of which are classified as general-purpose. The choice of which rollup to run or build on depends on the required feature set and security requirements. For example, applications like Uniswap can run on a general-purpose Layer 2 (such as Arbitrum One). However, if you are a encryption game or NFT project, or other applications that require higher throughput or extremely low transaction fees (such as $ 0.0001), you may need a different solution. This is where Layer 3 comes into play.

Examples of Layer 3 frameworks include Arbitrum Orbit and zkSync Hyperchains. Although Layer 3 is still in its early stages, some changes and improvements can be expected in the future. The overall idea of Layer 3 is to further scale Ethereum by creating highly customizable, affordable, fast, and interoperable chains with varying degrees of security and decentralization.

Degen Chain (DEGEN)

Degen Chain is an emerging innovative blockchain, launched in January 2024, and quickly attracted attention, with a fully diluted valuation (FDV) of over 2 billion USD within three months of its launch.

Degen Chain was initially launched on the Degen channel of Farcaster, a new social app that allows users to 'tip' quality content.

Degen is built using Arbitrum Orbit, settled to Base, and uses AnyTrust to achieve data availability (DA). The initial hype of the chain led to a surge in total locked value (TVL), but then stabilized, and the price of DEGEN also adjusted accordingly.

Sanko (DMT)

Another interesting Layer 3 application is Sanko, which is another chain built using Arbitrum Orbit and settled on Arbitrum L2, with data availability implemented using AnyTrust. Sanko focuses primarily on NFTs and gaming, taking advantage of the low cost and high throughput provided by Layer 3. Sanko's native token DMT has performed well in 2024.

Dream Machine is an interesting application of Sanko L3, which is also a platform that integrates social and gaming. Sanko.TV combines gaming and streaming entertainment, allowing users to purchase passes for their favorite anchors and access to private chat rooms, similar to the operation mode of Friend.tech.

Sanko demonstrated the customizability of Layer 3 chains, showcasing its potential. The price pump of DMT indicates sustained interest in the content built by Sanko, and its innovative nature combining gaming and social aspects is a notable value proposition. Social applications are gaining momentum, making Sanko undoubtedly a project worth following.

The Future of Layer 3

Layer 2 Mainnet has been online for several years and has made significant progress in scaling Ethereum. While the scaling roadmap is still ongoing, a highly customizable Layer 3 seems to be the logical next step. Many projects are currently experimenting on Layer 3 and have made varying degrees of progress.

However, an interesting use case and a brief craze do not necessarily mean a good investment. In the two examples we discussed (DEGEN and DMT), the native tokens have experienced significant fluctuations, and these chains have yet to be proven. However, now that Layer 2 has expanded and transaction fees only require a penny or two, opportunities and use cases have greatly increased. It is important to track the application type trends brought about by increased throughput and customizability, and Layer 3 will undoubtedly bring some interesting investment opportunities.