Best Layer 3 Projects

Best Layer 3 Projects in 2024

Layer 3 (L3) networks in crypto address a variety of issues, including scalability, complex decentralized application (dapp) support, blockchain interoperability, and customization. The technology is relatively new and niched, making the majority of available Layer 3 protocols the first or second in their respective fields. Our analysts have looked into the best L3s for onchain trading, gaming, social finance, DeFi, and NFTs in 2024 and compiled them into an easy-to-digest format.

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1. Orbs (ORBS)

Orbs leads the list as the best Layer 3 project for onchain trading in 2024, with its ORBS token having a market capitalization of $106 million. Orbs leverages its decentralized Layer 3 infrastructure to provide advanced solutions like aggregated liquidity, sophisticated trading orders, and decentralized derivatives. Orbs addresses the challenges of onchain execution, such as liquidity fragmentation and suboptimal pricing. Among the top protocols on Orbs are dLIMIT, dTWAP, and Liquidity Hub.

By bridging the gap between centralized finance (CeFi) execution quality and decentralized finance (DeFi) principles, Orbs offers CeFi-level pricing and execution within the DeFi ecosystem. This is achieved without transferring liquidity to a new chain, thus preserving the integrity of the existing ecosystem. Utilizing Proof-of-Stake consensus, Orbs serves as an intermediary layer that enhances the capabilities of both EVM and non-EVM smart contracts, enabling complex logic and scripts.

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2. Xai (XAI)

Xai is the top Layer 3 network tailored for the GameFi sector, holding a market capitalization of $101 million. Developed by Offchain Labs with Arbitrum technology, Xai revolutionizes the gaming industry by enabling real economies and open trade within video games. It enables potentially billions of traditional gamers to own and trade valuable in-game items without the need for crypto-wallets, thereby lowering the barrier to entry for mainstream adoption.

Xai's decentralized network allows anyone to operate a node, earning rewards and participating in governance, which fosters a transparent and inclusive ecosystem. The XAI token plays a crucial role as both the gas token for transactions and the primary currency within the gaming environment, facilitating payments for games and in-game items. By leveraging Ethereum's security while offering higher gas and contract limits, Xai optimizes onchain games such as Axie Infinity and Gods Unchained.

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3. Degen Chain (DEGEN)

Degen Chain secures its position as the third leading Layer 3 project with a market capitalization of $85 million, offering ultra-low-cost blockchain solutions tailored for the Degen community, making it the leading SocialFi L3. Launched in January 2024, Degen Chain leverages Arbitrum Orbit for scalability, Base for secure settlement, and AnyTrust for reliable data availability. Its native gas token, DEGEN, is pivotal in reshaping the Farcaster ecosystem by enabling Casters to reward high-quality content.

With over 465,000 holders and 6 million transactions, Degen Chain has quickly gained traction. By focusing on community engagement and innovative use cases such as tipping, rewards, and gaming, it offers a unique platform where online contributions are seamlessly converted into tangible value. The chain's architecture ensures efficient and secure transactions, supported by advanced technologies from partners like Conduit, Decent, and Airstack.

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4. zkLink Nova (ZKL)

zkLink Nova is the top Layer 3 chain for decentralized finance (DeFi), boasting an impressive $676 million in total value locked. As the industry’s first aggregated Layer 3 zkEVM Rollup network, zkLink Nova leverages the ZK Stack to integrate assets scattered across Ethereum Layer 2s, facilitating interoperable trade and transactions. This EVM-compatible platform supports a wide range of dapps and smart contract development, ensuring high scalability, low fees, and fast finality.

By utilizing the Validium mode for data storage, zkLink Nova significantly reduces gas costs, focusing on proof verification rather than data availability. Its robust security is underpinned by zero-knowledge proof technology, which also inherits the security guarantees of Ethereum. This combination of advanced features positions zkLink Nova as a versatile and powerful solution for the DeFi ecosystem. Users can stake the ZKL token for rewards on the Nova network or by using the Nova's dapps.

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5. Sanko Dream Machine (DMT)

Sanko Dream Machine, is an innovative Layer 3 project built natively on Arbitrum, that integrates NFT and token-based gaming with social networking. With a market capitalization of $55 million and a total value locked (TVL) of $15.8 million, Sanko's platform is powered by the Dream Machine Token (DMT). This multifunctional utility token facilitates decentralized exchanges and settlements within the ecosystem, ensuring a seamless and secure mode of payment without relying on intermediaries.

Gameplay rewards are distributed in DMT, incentivizing players through regular rewards epochs every 10 days, with filters in place to ensure fair play. Sanko Dream Machine offers a diverse range of native games, including a streaming service and options like poker, positioning itself as a comprehensive entertainment hub on the blockchain. Developed by Sanko GameCorp using the Orbit stack and AnyTrust DA, the Dream Machine represents a step in the fusion of blockchain technology and gaming.

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Layer 1 vs Layer 2 vs Layer 3 Blockchains

Blockchain technology is structured into three layers: Layer 1, Layer 2, and Layer 3, each serving distinct purposes within the ecosystem. Layer 1 blockchains, such as Bitcoin and Ethereum, form the foundational platforms where cryptocurrencies are built and transactions are recorded, ensuring robust security and decentralization.

However, these foundational layers frequently experience scalability issues and slower transaction speeds, prompting the creation of another blockchain layer known as Layer 2 (or simply L2). Arbitrum, Optimism, and Linea on Ethereum are examples of L2s. They address L1 limitations by increasing scalability and transaction volume. They also achieve faster and less expensive transactions while maintaining the security features of the underlying Layer 1.

Layer 3 is the application layer that allows developers to create specialized and complex applications that leverage the infrastructure provided by Layers 1 and 2. Layer 3s support the development of interoperable applications, cross-chain communication, and advanced functionalities tailored to specific use cases like decentralized finance (DeFi) platforms and gaming ecosystems. Layer 3 networks significantly optimize privacy, performance, and sector-specific needs.

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Projects Commonly Mistaken as Layer 3s

Since crypto and blockchain are extremely new and developing technologies, many of the innovations we make, still don't have fixed definitions yet. Layer 3 is an excellent example of this ambiguity, as online articles give different definitions of L3s. Because of their ability to connect multiple L1 and L2 blockchains, projects such as Polkadot, Cosmos, and Chainlink are frequently miscategorized as Layer 3s.

However, according to the logic of "layers," a true Layer 3 should be built on top of an L2 to serve more specialized functions. Polkadot and Cosmos, for example, are better referred to as Layer 0 protocols because they enable interoperability across multiple blockchains. Chainlink, on the other hand, is an oracle network that connects data from the outside world (offchain) with the blockchain world (onchain).

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Bottom Line

Layer 3 (L3) networks in crypto address a variety of issues, including scalability, complex dapp support, and customization. Projects such as Orbs, Xai, Degen Chain, zkLink Nova, and Sanko Dream Machine demonstrate how this emerging technology will create scalable, secure, and efficient solutions in 2024. They serve niche functions while building on the more secure Layer 1 and Layer 2 blockchains.