L3s are scaling Ethereum to new heights

Ethereum L2s have already surpassed L1 (mainnet) in terms of daily tx by an order of 4x.

Now Ethereum L3s are on the horizon, perhaps taking over L2s in activity!

But what are L3s? Which L2s are building these L3s? Why do we need them?

To understand how L3s work, let's start with a quick explanation on how L2s work.

L2s are separate blockchains that inherit the security guarantees of Ethereum.

These blockchains regularly submit bundles of transactions on Ethereum L1 to benefit from its security.

L2s offer cheaper & faster transactions because they combine multiple off-chain transactions into a single L1 transaction.

Their users still have to pay gas fees to submit transaction bundles to the L1, but these fees are much lower.

Still, L2s aren't enough scalable for all kinds of dApps.

Even though the next Ethereum upgrade will reduce the L2 transaction fees by 5-10x, this is still now enough for some apps such as games.

This is where where L3s come in!

L3s work similarly to L2s, but they submit transaction bundles to the L2. While L2s are at most as secure as the L1, L3s are at most as secure as the L2 as they're built on top of. Storing transactions on L2s is very cheap, so the gas fees on L3 are negligible.

Most L2s are general-purpose scaling solutions that supports a wide range of different applications. On the other hand, L3s are the ideal scaling solution for apps that require higher levels of customizability, like:

• Games

• Orderbook DEXs

• Privacy-enabled dapps

Let's look at orderbook DEXs as an example. All the major CEXs are based on the orderbook model. Given CEXs centralised nature they are able to offer lower trading fees in comparison to DEXs.

Building a scalable orderbook DEX fully on-chain is complicated as it requires:

• very high transaction throughput

• extremely low transaction fees.

Neither Ethereum mainnet nor its L2s can offer that. But L3s offer a perfect scaling solution.

So where can you deploy an orderbook DEX on an L3?

Examples of Ethereum L3s

One L3 in the making is Arbitrum Orbit.

With the recently released tooling, deploying a chain on top of Arbitrum takes just a few minutes

Another example of an L3 is ZK Stack announced by @zksync, a modular framework for building ZK-powered L2s and L3s dubbed Hyperchains. The interesting thing about it is that all Hyperchains can seamlessly communicate with each other.

A third L2 project that has shown interest in opening up for L3s to be built on their L2 is Starknet. A software development kit for building zkEVM L3s on top of Starknet is already under development! But we don't much about it yet, so stay tuned for more updates...