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The Rise of Layer 3s?

Layer 2s scaled Ethereum. Layer 3s give it shape, control, and direction.

Layer 2s were supposed to solve Ethereum’s biggest problems. Congestion, high gas fees, and sluggish user experiences had pushed the network into a corner. And to their credit, L2s delivered. Rollups like Arbitrum, Optimism, zkSync, and Starknet scaled Ethereum in ways that felt nearly impossible just a few years ago. They offered cheaper, faster, and more scalable execution by offloading the bulk of transaction processing from Layer 1. They allowed Ethereum to breathe again. Developers came back. Gas costs dropped. The ecosystem flourished.

But for all that L2s accomplished, they were never designed to be the endgame. They were a much-needed leap forward, but not the final step. Because at their core, L2s are general-purpose environments. They batch and compress transactions, but they do not cater to the specific needs of different application verticals. Every smart-contract shares the same execution environment. Every dApp, regardless of use case, competes for the same blockspace, the same gas markets, and the same sequencing logic.

And as usage scaled, those limits started to show. Developers need more control, more performance, and more flexibility. Not just in how their applications execute, but in how they govern themselves, how they structure fees, how they integrate with other apps, and how they experiment with new user experiences and associated processes. What they needed was not just cheaper blockspace, but sovereignty.

The introduction of Layer 3’s are a response to those demands. They are about unlocking application-specific chains that live on top of Layer 2s. They inherit trust, data availability, and settlement guarantees from their parent layers, but they gain enough independence to define their own execution logic, token models, and governance. If L2s were about scalability, L3s are about programmability.

So what is a Layer 3? Technically, it is a rollup or appchain that does not settle directly to Ethereum, but rather to a Layer 2. These appchains use the L2 as their base for data availability, settlement, and often security, but handle their own execution environments independently. This layered architecture lets developers specialize each layer for a specific role. L1 remains the base of trust and censorship resistance. L2s focus on generalized scalability. L3s handle application-specific customization.

What is compelling about this is that it mirrors the history of the internet itself. Just like networks evolved from general purpose infrastructure to app-specific deployments and eventually to composable APIs, Ethereum is moving from shared smart-contracts to specialized rollups to networks of interoperable appchains. The L3 vision is an expression of that evolution.

Developers are already moving in. Take zkSync’s Hyperchains, which represent one of the most fully formed L3 initiatives. These are sovereign zK-rollups that run on top of zkSync Era. Developers choose from several execution environments and can configure their own data availability model, whether that is Ethereum, zkPorter, or a Validium design. Hyperchains support native bridging across the zkSync ecosystem and can operate with their own token economics, sequencer design, and governance.

Another leading example is Starknet’s approach to Layer 3 appchains. Using the Madara sequencer and the Cairo programming language, developers can deploy high-performance rollups that optimize for gaming, DeFi, or private computation. The recent partnership with Avail adds support for offchain data availability, while ongoing work with Celestia is expanding the list of modular DA options. Starknet Appchains are gaining traction, with projects like Nums (a sequential gaming infrastructure), demonstrating what custom appchains can do in practice.

Arbitrum’s Orbit framework provides an alternate model. It is less about new VM types and more about composable, EVM-compatible rollups that inherit trust and tooling from the Arbitrum parent chain. Orbit chains are easy to deploy, support their own custom fee markets and governance systems, and settle to Arbitrum One or Nova. This approach has made it especially attractive for teams who want Ethereum aligned infrastructure without dealing with the full burden of L1 settlement.

Other protocols are following suit. Polygon’s Chain Development Kit (CDK), Fuel’s rollup SDK, and Orbs’ Layer 3 scaling architecture are each building frameworks to make appchains and L3 rollups more accessible to the next wave of developers. What unites these approaches is a shift in mindset: from shared execution to tailored, modular coordination.

Layer 3s are not monolithic. There are multiple models in play, and each comes with a different set of trade-offs. Lets Explore.

Some L3s are built as sovereign zK-rollups. These chains use zK proofs to verify correctness, and they often rely on recursive proof systems that aggregate multiple proofs into a single submission to Layer 2. zkSync’s Hyperchains fall into this category. They allow a chain to be fully sovereign in execution and governance while still having composability with other chains in the ecosystem through native bridges and recursive proofs.

Others are more like permissioned appchains with EVM compatibility. Arbitrum Orbit and Polygon CDK let developers launch chains with custom rules and governance while still maintaining compatibility with existing Ethereum tooling. These chains prioritize ease of deployment, developer experience, and ecosystem integration.

Then there are Cairo-native chains like Starknet Appchains. Built on Starkware’s SN stack, these chains use Cairo as the core VM, offer high-performance execution, and can integrate with off-chain DA layers like Avail or Celestia. They are well-suited for complex computation, gaming environments, and teams that want performance without sacrificing the safety net of Ethereum settlement.

Key architectural choices within the L3 design space include:

• Data availability: Will the L3 post data to Ethereum, to its L2 parent, or to an off-chain DA layer like Celestia or Avail? This choice affects both cost and security guarantees.

• Sequencer design: Some chains rely on centralized sequencers (especially in early test phases). Others are exploring shared sequencers or rotating validator sets. Decentralized sequencing remains an open challenge for most ecosystems.

• Bridge architecture: Many L3 ecosystems rely on native messaging layers to reduce latency and improve cross-chain UX. zkSync’s Hyperbridge and Starknet’s interoperability tooling are examples of this.

• Settlement layers: Some chains settle to Ethereum only occasionally or through batch compression, while others rely entirely on their parent L2 for finality and dispute resolution.

The result is a growing diversity of architectures. But it also means developers need to make real decisions about how much they want to control versus how much trust they are willing to delegate. Layer 3 design is modular by nature, but that modularity brings complexity.

As exciting as the Layer 3 landscape is, it also introduces new surface areas for failure. More chains mean more complexity. Each Layer 3 adds another link in the trust chain. They serve as an execution layer that inherits its guarantees from a parent L2, which itself relies on Ethereum. If any part of the stack is compromised, the layers above it suffer.

This matters especially when it comes to sequencing and data availability. Most Layer 3s today rely on centralized or semi-centralized sequencers. That is fine for early-stage ecosystems, but it leaves the ecosystem vulnerable to censorship and downtime. Shared sequencers are being explored as an answer, but these are still under experimental development. Until they mature, L3s remain bottlenecked by the same centralization challenges that L2s have faced.

Fragmentation is another problem. With every new appchain, liquidity gets split. Token pairs become isolated. Users have to bridge not just between Layer 1 and Layer 2, but across multiple Layer 3s. Unless native messaging becomes seamless and cost-effective, users will feel the friction. Developers will have to think hard about how to keep composability without forcing everyone to live on the same shared chain.

Then there is the economic coordination problem. Who captures value in this new architecture? Does the L2 hosting an L3 get a share of the sequencer fees? Do L3s mint their own tokens and build separate economies? Do we need revenue-sharing protocols between L1, L2, and L3 layers? These are still open questions. Right now, most projects are experimenting in isolation. But as usage grows, these economic questions will become governance flashpoints. 

The recent L2 economic capture debate is an apt foreshadowing of what is to come with the emergence of L3’s. Do L3’s support or extract value from the layers beneath, and to what degree? This contention will continue as we start to capture the full scope of the Ethereum ecosystem. Regardless, the emergence of L3’s will not be stopped as the promise of programmability holds the potential for the development of applications that are not only useful, but abstract the chain in ways never seen before.

Security is the last, and most important, consideration. When a Layer 3 chain relies on a Layer 2 for settlement and a separate DA provider for availability, it is assuming a great deal of trust. If the DA layer goes offline, proofs cannot be verified. If the parent L2 has a downtime event, the L3 inherits that vulnerability. We are seeing new tools emerge, such as validity proofs that cascade across layers, and fallback modes that use Ethereum directly, but these systems are still fragile.

Despite the challenges, the trajectory is clear. Layer 3s are not just a niche. They are the beginning of a broader trend toward modular blockchain architecture. This is not about throwing more layers at Ethereum, but about restructuring how chains are built. Sovereignty may become the desired feature with new chains, and in this environment the shared infrastructure approach is in contention with independent and isolated coordination layers. And for the first time in years, developers are being invited to design the chain itself, not just deploy code on someone else’s.

In the emerging world of L3’s, we will likely see a few major patterns take hold. First, we will see the rise of rollup-as-a-service. Teams like Caldera, AltLayer, and Conduit are already making it easier to deploy custom rollups without needing to stand up your own prover infrastructure or bridge contracts. This lowers the barrier to entry for launching appchains dramatically.

Second, expect to see more experiments with shared sequencers and unified bridges. These will be the glue that keeps L3s composable. If we get this right, appchains can specialize without fragmenting. They can act like sovereign chains without acting like silos.

Third, watch the design space around economic incentives. Protocols will begin to offer fee rebates, token distribution systems, and onchain revenue sharing models to attract developers to their stack. This could reshape how value flows through Ethereum entirely.

And lastly, expect the user experience to abstract all of this away. Users should not need to know if they are interacting with an L2 or L3. They should not have to bridge manually or sign dozens of approvals. The infrastructure is maturing to the point where UX can finally take center stage.

Layer 2s got Ethereum out of its bottleneck. Layer 3s will make it programmable again. The difference is subtle but profound. L2s focused on throughput. L3s focus on freedom. They let developers build exactly what they want, how they want, and give users faster, cheaper, and more secure experiences in the process.

We are not just scaling Ethereum. We are unbundling it. And that is going to change everything.

Stay curious, stay building. The best infrastructure is the kind you never notice.

Layer 2 June Highlights

Decline in ETH on L2s: On aggregate, ETH held on L2s dropped ~25% since March, with Optimism (-54%), Arbitrum (-17%), and Base (-14%) shedding reserves, reflecting macro dynamics including staking migration.

Threshold launches tBTC Native Minting on Base: Base now has tBTC minting natively on its network, enabling seamless Bitcoin-backed DeFi interactions through integrated rewards and utility.

Optimism extends $2 million dollar Bug Bounty Program: Optimism extended its bug bounty program to cover Upgrade 16 to the OP Stack. This marks the first time calldata from proposed upgrades is in scope, ahead of Superchain Interoperability.

Chainalysis integrates X Layer across entire product suite: Chainalysis integrates X Layer, a zero-knowledge Ethereum L2 on Polygon. Chainalysis customers gain the advantage of automatic token support, where support of new fungible and non-fungible tokens can be deployed to X Layer.

Sandeep Nailwal takes control of Polygon Foundation: Nailwal will sunset Polygons zkEVM chain and focus on real-world assets (RWAs) and stablecoin payments through Polygon PoS while using its AggLayer to pursue its dream of building the internet of blockchains.

Optimism prioritizes decentralization with Season 8 Governance: the upgraded governance framework includes a new approval process for proposals, where most Optimism proposals will auto-pass unless a stakeholder vetoes.

TEC Spotlight

Listen to our deep-dive conversation with 0xJoshua of Azos Finance, the pioneering platform building the world’s first impact-asset-backed stablecoin. In this exclusive interview, we’ll explore:

• What Impact Assets are and why they matter
• The mechanics behind Azos’ over-collateralized stablecoin
• How DeFi can be a tool for positive global transformation
• Insights into the challenges and innovations shaping sustainable finance on-chain.

Whether you’re passionate about regenerative finance, curious about the future of stablecoins, or just want to understand how crypto can serve the real world, this conversation is for you.

Newsletter hosted by the Token Engineering Commons

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