From Natural Numbers to Blockchain: Unveiling the Potential of Layer 3 Scaling and the Rise of Rollups

High Rollers:

Scaling solutions have evolved from L1 to L2, and now we are entering the realm of Layer 3.

After the recent Starknet Conference in Paris, where the phrase “more layers please” became a meme, Layer 3 scaling is no longer a joke.

In this post, we will dive into the current state of scaling at the rollup level, discover the immense potential of Layer 3, and highlight the pioneering teams pushing the boundaries in this space.

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𝗦𝗰𝗮𝗹𝗶𝗻𝗴 𝘁𝗼 𝗹𝗮𝘆𝗲𝗿 ‘𝗻’ 𝗶𝘀 𝗮 𝗿𝗲𝗮𝗹 𝗽𝗵𝗲𝗻𝗼𝗺𝗲𝗻𝗼𝗻 𝘁𝗵𝗮𝘁 𝘄𝗲 𝗮𝗿𝗲 𝗷𝘂𝘀𝘁 𝘀𝗰𝗿𝗮𝘁𝗰𝗵𝗶𝗻𝗴 𝘁𝗵𝗲 𝘀𝘂𝗿𝗳𝗮𝗰𝗲 𝗼𝗳 𝗶𝗻 𝘁𝗲𝗿𝗺𝘀 𝗼𝗳 𝘂𝘀𝗲𝗿 𝗲𝘅𝗽𝗲𝗿𝗶𝗲𝗻𝗰𝗲 𝗮𝗻𝗱 𝘁𝗵𝗿𝗼𝘂𝗴𝗵𝗽𝘂𝘁…

In math, ‘n’ is used to denote the total set of natural numbers i.e. 1, 2,3,4

In crypto, we’ve already surpassed L1, L2, and now we are embarking on a journey towards maximum scale via the extremely exciting Layer 3.

After an epic @StarknetCC in Paris this year, I picked up a shirt that said “more layers please” and at the moment it was a meme….

𝘉𝘶𝘵 𝘯𝘰𝘸, 𝘫𝘶𝘴𝘵 𝘢 𝘧𝘦𝘸 𝘮𝘰𝘯𝘵𝘩𝘴 𝘭𝘢𝘵𝘦𝘳, 𝘵𝘩𝘪𝘴 𝘪𝘴 𝘲𝘶𝘪𝘤𝘬𝘭𝘺 𝘣𝘦𝘤𝘰𝘮𝘪𝘯𝘨 𝘢 𝘳𝘦𝘢𝘭𝘪𝘵𝘺 𝘪𝘯 𝘵𝘩𝘦 𝘮𝘰𝘥𝘶𝘭𝘢𝘳 𝘴𝘤𝘢𝘭𝘪𝘯𝘨 𝘤𝘪𝘳𝘤𝘭𝘦𝘴 𝘐’𝘷𝘦 𝘧𝘰𝘶𝘯𝘥 𝘮𝘺𝘴𝘦𝘭𝘧 𝘦𝘯𝘵𝘳𝘦𝘯𝘤𝘩𝘦𝘥 𝘪𝘯 𝘳𝘦𝘤𝘦𝘯𝘵𝘭𝘺.

In today’s post, you’ll learn about the state of scaling as it exists at the rollup level today, why L3s have insane potential in the landscape as we know it today, and several teams who are pushing the boundaries of this space 👇

L2s have been a hot topic in the blockchain community, bringing speed and low-cost in a decentralized, secure manner.

Rollups (regardless of the type) inherit the security model of Ethereum, leading to a safe, EVM experience which cannot be replicated with alt-L1s.

TVL has absolutely blown up to nearly $12B in the midst of a bear market with
@arbitrum & @optimismFND leading the way, and an OP stack chain @BuildOnBase a close third.

(𝘪𝘮𝘢𝘨𝘦 𝘧𝘳𝘰𝘮 @l2beat)

L2 solutions focus on scaling transactions and improving efficiency, while providing a far better user experience.

𝗕𝘂𝘁, 𝘄𝗵𝗮𝘁 𝗮𝗯𝗼𝘂𝘁 𝘁𝗵𝗲 𝗻𝗲𝘅𝘁 𝗹𝗮𝘆𝗲𝗿 𝗼𝗻 𝘁𝗼𝗽…?

L3 solutions introduce a new layer of customization and interoperability, typically seen as an app-specific rollup.

While L2s address scalability issues, there are limitations to general purpose L2s which require more scale for specific use cases…we’ll get into that shortly.

First, an explainer on L3s:

The idea behind layer 3s is to assign different purposes to the second and third layers, going beyond simply stacking the same technology.

Where in this case below, the “Rollup” effectively becomes the settlement layer, and and the L3 is the layer for specialized apps, privacy, validium, games, and more.

One example is the framework proposed by @StarkWareLtd, which offers a more sophisticated approach. By optimizing data compression and separating “data” from “proofs,” layer 3s can provide significant scalability benefits.

@Starknet is the gen purpose L2, where you can have other chains stacked atop the L2 as a separate L3 with a multitude of use cases, see below:

These L3s provide scalability benefits while being cheaper than rollups, although with a lower grade of security.

Additionally, L3s can enable cross-domain operations within a single rollup, facilitating cost-effective transactions without relying heavily on the expensive Ethereum L1.

The cost per transaction in general purpose L2 rollups is relatively low, but the fixed cost of submitting batches to the main chain can be significant.

L3s rollup their transactions onto the L2 “under” it, paying a single L2 gas fee to do so. Right now, L2 gas fees range from a few cents to a dollar, depending on demand for Ethereum blockspace.

While L3s may resemble L2s in some ways, they differ in their architectural approach. L3s often involve specialized objects rather than complex full EVM systems, making them easier to build, and less likely to change over time.

For example, @arbitrum orbit has tons of games now live on their own app specific rollup.

@XAI_GAMES

@Cometh

@SyndrHQ

@polychainmon

@meliorafnd

@SankoGameCorp

@oursong

@DeriProtocol

@HookProtocol

@Superpositionso

Games are a perfect use case for L3s because of their lesser need for composability, yet stronger demand for high TPS, low costs, and deep customization.

This L3 model for gaming and other specialized apps is superior to the general purpose L2 model because it allows a sub-ecosystem to exist within a single rollup, which allows cross-domain operations within that ecosystem to happen very cheaply, without needing to go through the expensive L1.

The key realization is that tokens and other assets do not have to be issued in the root chain. That is, you can have an ERC20 token on Arbitrum, create a wrapper of it on Optimism, and move back and forth between the two without any L1 transactions!

See below:

Teams which choose to deploy using @gelatonetwork, @alt_layer, @Calderaxyz
also can deploy an app specific rollup within a specific framework which exists (Orbit, OP stack, @0xPolygon CDK) to fit their needs.

They can also have an easier experience building a general purpose L2 rollup using the stack, like @modenetwork.

Should, for example, a team decide to an app-specific rollup atop one of the RaaS teams mentioned above, they would also be paying L3 fees to the L2 layer.

From a purely economic POV, L3s contribute to the underlying layer surplus of fees after DA/settlement costs.

Arbitrum is ahead of the game here with Orbit.

𝗙𝗼𝗿 𝘁𝗵𝗲 𝘀𝗮𝗸𝗲 𝗼𝗳 𝘁𝗵𝗶𝘀 𝗽𝗶𝗲𝗰𝗲 𝘁𝗵𝗼𝘂𝗴𝗵, 𝘄𝗲 𝘄𝗶𝗹𝗹 𝗳𝗼𝗰𝘂𝘀 𝗼𝗻 𝘁𝗵𝗲 𝗯𝗲𝗻𝗲𝗳𝗶𝘁𝘀 𝗳𝗼𝗿 𝗰𝗲𝗿𝘁𝗮𝗶𝗻 𝘂𝘀𝗲 𝗰𝗮𝘀𝗲𝘀 𝘁𝗼 𝘀𝗰𝗮𝗹𝗲 𝗵𝗶𝗴𝗵𝗲𝗿 𝘁𝗵𝗮𝗻 𝘁𝗵𝗲 𝘀𝗲𝗰𝗼𝗻𝗱 𝗹𝗮𝘆𝗲𝗿:

By now its clear that L3s provide benefits to apps which can operate in a siloed, customizable execution environment.

For example, privacy-focused L3 solutions could provide enhanced privacy-preserving transactions without compromising the security and transparency of the underlying blockchain. These solutions enable users to potentially engage in private transactions (given in line with current regs) while still benefiting from the advantages of speed, security, and decentralization.

𝗧𝗼 𝗺𝗲, 𝗼𝗻𝗲 𝗼𝗳 𝘁𝗵𝗲 𝗺𝗼𝘀𝘁 𝗰𝗼𝗺𝗽𝗲𝗹𝗹𝗶𝗻𝗴 𝗮𝘀𝗽𝗲𝗰𝘁𝘀 𝗼𝗳 𝗹𝗮𝘆𝗲𝗿 𝘁𝗵𝗿𝗲𝗲𝘀 𝗶𝘀 𝘁𝗵𝗲𝗶𝗿 𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝘁𝗼 𝗽𝗼𝘁𝗲𝗻𝘁𝗶𝗮𝗹𝗹𝘆 𝘀𝗰𝗮𝗹𝗲 𝗮𝗽𝗽𝗹𝗶𝗰𝗮𝘁𝗶𝗼𝗻𝘀 𝘁𝗼 𝗩𝗶𝘀𝗮 𝗼𝗿 𝗰𝗿𝗲𝗱𝗶𝘁 𝗰𝗮𝗿𝗱 𝘁𝗿𝗮𝗻𝘀𝗮𝗰𝘁𝗶𝗼𝗻 𝗹𝗲𝘃𝗲𝗹𝘀, 𝗲𝘀𝗽𝗲𝗰𝗶𝗮𝗹𝗹𝘆 𝘇𝗸 𝗯𝗮𝘀𝗲𝗱 𝗰𝗵𝗮𝗶𝗻𝘀.

This level of scalability enables dApps to handle the same transaction volumes as traditional payment systems and one day, rival them with better UX design.

Very exciting.

With L3s, the vision of crypto becoming a viable alternative to centralized payment systems is within reach, in a secure, decentralized, trustless fashion.

I keep iterating this because there are in existence now fast L1s. Yet the tradeoffs are huge. Small validator sets, centralized control of tx batching, single points of failure, lack of governance in place…

𝘐 𝘩𝘢𝘷𝘦 𝘣𝘦𝘦𝘯 𝘢 𝘋𝘦𝘍𝘪 𝘮𝘢𝘹𝘪 𝘧𝘰𝘳 𝘢 𝘭𝘰𝘯𝘨 𝘵𝘪𝘮𝘦, 𝘢𝘯𝘥 𝘐 𝘳𝘦𝘧𝘶𝘴𝘦 𝘵𝘰 𝘴𝘦𝘦 𝘢 𝘸𝘰𝘳𝘭𝘥 𝘸𝘩𝘦𝘳𝘦 𝘸𝘦 𝘨𝘪𝘷𝘦 𝘶𝘱 𝘵𝘩𝘢𝘵 𝘦𝘵𝘩𝘰𝘴 𝘪𝘯 𝘦𝘹𝘤𝘩𝘢𝘯𝘨𝘦 𝘧𝘰𝘳 𝘪𝘮𝘮𝘦𝘥𝘪𝘢𝘵𝘦 𝘴𝘤𝘢𝘭𝘦.

Things take time.

In conclusion, the combination of L2s and L3s creates a powerful framework for onchain scalability and innovation. L2 solutions handle the bulk of transactional ‘traffic’, improving throughput and reducing fees, while L3 solutions provide customized functionality and enable interoperability between different blockchains without paying expensive L1 fees.

By leveraging L3 solutions, applications can achieve exponential scalability and enhanced user experiences. However, it is important to note that the design and implementation of L3 solutions can be complex.

L3s require careful consideration of different purposes and functionalities for each layer, always aligned with the original ethos of Ethereum. This ensures that the scalability boost is not limited to a one-time improvement but can be sustained and expanded as the ecosystem grows.

𝗝𝘂𝗺𝗽 𝗶𝗻, 𝗮𝗻𝗼𝗻. 𝗪𝗲 𝗮𝗿𝗲 𝘀𝗰𝗮𝗹𝗶𝗻𝗴 𝘁𝗼 𝘁𝗵𝗲 ‘𝗻’ 𝗹𝗮𝘆𝗲𝗿 𝗮𝗻𝗱 𝘁𝗵𝗲 𝘁𝗲𝗰𝗵 𝗶𝘀 𝗮𝗹𝗿𝗲𝗮𝗱𝘆 𝗯𝗲𝗶𝗻𝗴 𝗯𝘂𝗶𝗹𝘁. 𝗪𝗵𝗲𝗿𝗲 𝘄𝗲𝗿𝗲 𝗵𝗲𝗮𝗱𝗲𝗱 𝗶𝘀 𝗮 𝘄𝗼𝗿𝗹𝗱 𝗼𝗳 𝘀𝗲𝗰𝘂𝗿𝗲, 𝗳𝗮𝘀𝘁, 𝗿𝗲𝗹𝗶𝗮𝗯𝗹𝗲 𝗰𝗵𝗮𝗶𝗻𝘀 𝗯𝘂𝗶𝗹𝘁 𝗳𝗼𝗿 𝘁𝗵𝗲 𝗺𝗮𝘀𝘀𝗲𝘀.

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