L3s: The Next Evolution in Blockchain Scalability and Customization

ELI5 – L3s

TL;DR:
While L2s have driven onchain activity through lower gas fees and higher throughput, their need to maintain decentralization and alignment with ETH L1 imposes constraints. Builders seeking [1] greater customization for their apps and [2] access to L2 distribution are now turning to L3s—application-specific chains that settle to an L2.

L3s: The Basics

L3s (or Layer 3s) are gaining traction in the EVM L2 landscape. They represent a new paradigm in blockchain scalability by providing application-specific execution layers that offer greater flexibility and efficiency compared to L2s.

L3s function as independent execution environments that inherit security from their underlying L2 while reducing costs and increasing performance. By settling transactions to an L2 instead of directly to L1, L3s alleviate congestion on Ethereum’s base layer, making them an attractive solution for applications requiring high throughput and cost efficiency.

Unlike L2s, which primarily focus on scaling Ethereum while maintaining decentralization and security, L3s prioritize customization. They enable developers to optimize their blockchain environments for specific use cases, such as gaming, DeFi, and enterprise applications. This level of specialization allows for innovative implementations in areas like custom virtual machines, alternative data availability solutions, and unique tokenomics models.

L3s are also instrumental in reducing operational costs. The annual cost of running an L2 is significantly high due to L1 settlement fees and security expenditures, whereas L3s offer a more affordable alternative by leveraging L2 infrastructure. This makes them particularly attractive for startups and projects with budget constraints looking to deploy scalable blockchain solutions.

By integrating with existing L2 hubs, L3s provide developers with immediate access to liquidity and user bases while benefiting from the security and decentralization properties of Ethereum’s ecosystem. As the adoption of L3s continues to grow, they are expected to play a pivotal role in expanding blockchain use cases and driving mainstream adoption.

Key Takeaways

What Are L3s?

If L2s are the hubs of onchain activity, L3s function like “onchain servers”—providing isolated environments and independent fee markets while settling to L2s and leveraging their onramps. This setup grants applications custom blockspace while maintaining access to L2 liquidity and users.

L3s offer a tailored environment where developers can control execution, fee structures, and consensus mechanisms without affecting other applications. This autonomy is crucial for projects requiring specialized configurations, such as gaming platforms, high-frequency trading applications, and enterprise-grade solutions.

A major advantage of L3s is their ability to optimize transaction processing. Since they operate in isolated environments, they reduce congestion on the underlying L2, resulting in faster confirmation times and more predictable gas fees. This makes L3s ideal for applications that demand low-latency performance, such as real-time financial services or interactive gaming.

Furthermore, L3s can leverage alternative data availability (DA) solutions to further reduce costs. Instead of relying on Ethereum’s L1 for DA, they can integrate with services like Celestia or EigenDA, which offer lower-cost data verification while maintaining security guarantees. This flexibility allows developers to balance trade-offs between decentralization, security, and cost efficiency based on their application’s needs.

By providing dedicated execution environments while maintaining deep interoperability with L2 hubs, L3s enable developers to build scalable applications without sacrificing security or accessibility. As adoption grows, L3s are expected to play a key role in expanding the Ethereum ecosystem and fostering the next wave of blockchain innovation.

Key Benefits:

• Cost Efficiency: L3s reduce costs by up to 1000x through:
  1. Lower onboarding costs (direct CEX-to-L2 transfers)
  2. Cheaper settlement (L2 vs. L1 execution)
  3. Alternative data availability (DA), which constitutes 95%+ of L2 costs using ETH L1 data. L3s use cheaper alternatives, leading to predictable gas fees.
• Customizability: L3s, with lower decentralization standards than L2s, enable experimentation with tokenomics (custom gas tokens), virtual machines (e.g., Solana VM on ETH L2), and alternative DA solutions (e.g., Celestia).

How Are L3s Different from L2s?

L3s function as rollups, sharing many similarities with L2s but introducing distinct advantages that enhance flexibility, cost efficiency, and customizability:

• Settlement: L3s settle transactions to L2s, just as L2s settle to Ethereum L1. This hierarchical structure allows L3s to benefit from L2 security while further reducing transaction costs and settlement times.
• Bridging: L3s utilize bridging mechanisms similar to L2s, allowing assets to move seamlessly between L1, L2, and L3. Bridging can occur through canonical bridges provided by L2 protocols or via third-party bridges offering additional functionalities like liquidity aggregation and interoperability across different ecosystems.
• Virtual Machines: Unlike L2s, which often adhere to standardized execution environments like the Ethereum Virtual Machine (EVM), L3s can support different virtual machines (VMs). Many L3s currently in production use Arbitrum Nitro but settle on Base (OP Stack). Additionally, developers can implement alternative execution environments such as Solana VM, MoveVM, or custom-built stacks tailored for specific use cases.
• Data Availability: L2s rely on Ethereum L1 for data availability (DA) to ensure decentralization and security. In contrast, L3s can opt for alternative DA solutions such as Celestia, EigenDA, or Arbitrum AnyTrust. This flexibility allows L3s to significantly reduce operational costs while maintaining secure and efficient transaction processing. By leveraging cheaper DA mechanisms, L3s create more predictable and lower gas fees for end users.

Overall, L3s introduce an additional layer of scalability while retaining close integration with L2 hubs. They provide dedicated application-specific environments, enabling builders to optimize trade-offs between decentralization, performance, and cost efficiency without overburdening Ethereum L1 or its L2 scaling layers.

How to Launch an L3

Developers can deploy L3s using multiple approaches, depending on their technical expertise, resource availability, and infrastructure needs:

1. Self-managed infrastructure: Developers who want complete control over their stack can set up and manage their L3 independently. This involves configuring the rollup framework, ensuring DA mechanisms are in place, and maintaining operational security. While this offers the highest flexibility, it requires significant technical expertise and ongoing maintenance.
2. Rollup-as-a-Service (RaaS) providers: Managed solutions from providers like Conduit or Caldera simplify deployment by handling infrastructure, security, and maintenance. These services offer pre-configured rollup stacks, reducing the complexity of launching and operating an L3.
3. White-label service providers: Companies like Syndicate offer end-to-end L3 deployment solutions by integrating various infrastructure components, including RaaS, bridges, and developer tools. This option allows projects to quickly launch and scale their L3 without needing to build the stack from scratch.

How to Launch an L3

Developers can deploy L3s using multiple approaches, depending on their technical expertise, resource availability, and infrastructure needs:

1. Self-managed infrastructure: Developers who want complete control over their stack can set up and manage their L3 independently. This involves configuring the rollup framework, ensuring DA mechanisms are in place, and maintaining operational security. While this offers the highest flexibility, it requires significant technical expertise and ongoing maintenance.
2. Rollup-as-a-Service (RaaS) providers: Managed solutions from providers like Conduit or Caldera simplify deployment by handling infrastructure, security, and maintenance. These services offer pre-configured rollup stacks, reducing the complexity of launching and operating an L3.
3. White-label service providers: Companies like Syndicate offer end-to-end L3 deployment solutions by integrating various infrastructure components, including RaaS, bridges, and developer tools. This option allows projects to quickly launch and scale their L3 without needing to build the stack from scratch.

Each approach provides different trade-offs in terms of cost, customization, and operational control. Choosing the right path depends on the specific needs of the project, whether prioritizing full autonomy, ease of deployment, or managed infrastructure solutions.

Will There Be L4s?

L3s already provide dedicated blockspace with direct L2 liquidity access, likely eliminating the need for L4s. Instead of vertical scaling (L4s), L3s will scale horizontally:

• L4s would not improve costs: DA savings drive L3 cost efficiency, and moving up a layer wouldn’t reduce settlement/execution costs.
• L3 scalability: If an L3 reaches capacity, spinning up another L3 linked via a native bridge is a more efficient scaling strategy.

Ecosystem Implications

L3s introduce a new paradigm for onchain development, enabling:

• A shift toward millions of L3s: While L2s consolidate into major hubs, L3s proliferate as application-specific servers.
• A potential “app store” moment: L3s’ ultra-low costs could catalyze mainstream onchain apps.
• An “AWS” moment for blockchain: The cost of running an L2 can reach 7–8 figures annually, whereas L3s cost just $25K–$50K per year.
• Expansion beyond Solidity/Vyper: L3s will drive adoption of alternative frameworks (MoveVM, SolanaVM, Arbitrum Stylus) while leveraging Ethereum’s network effects.
• Application-layer value capture: L3 success metrics center on user adoption and transactions rather than sequencer fees. Individual L3s may be small, but their collective impact will drive demand for developer tools, RaaS solutions, and chain abstraction protocols.
• Multi-L3 ecosystems: Projects may launch multiple L3s (e.g., an onchain gaming company could run separate L3s for each game), creating self-sustaining ecosystems.

L3s Need Better Interoperability to Succeed

Seamless user interaction is crucial for L3 adoption:

• Bridging: L3s can bridge either natively (if settling to the same L2) or via third-party providers. The experimental nature of L3s favors flexible, non-uniform bridging layers.
• Selective interoperability: L3s may prioritize connections to their canonical L2 rather than full cross-chain interoperability. Instead, they will focus on enhancing bridge features (e.g., reducing latency, offering liquidity aggregation).
• Ongoing protocol R&D: Concepts like Based Rollups are exploring native sequencer-level integrations for improved interoperability.

Future Outlook

The L2 ecosystem will see rapid growth in L3 development as builders seek isolated application environments while benefiting from L2 liquidity. If you’re building L3 solutions, I’d love to connect.