Original author: 0X STRUBE

Original translation: TechFlow

Ethereum has made significant progress on its roadmap over the past few years, completing the transition from Proof of Work (PoW) to Proof of Stake (PoS), known as “The Merge.” More recently, there has been a "Dencun" upgrade, including proto-danksharding, making Layer 2 transactions even cheaper.

(Source: growthepie)

Before Dencun, the transaction fee for Layer 2 was about $0.50, but now the transaction fee on most Layer 2 chains is only one or two cents. This change has greatly promoted the expansion of new applications on Ethereum.

(Source: Artemis)

Since the Dencun upgrade, daily transaction volume on Arbitrum and Base has surpassed that of the Ethereum mainnet, and this trend continues. While there is still a lot of work to be done in scaling Ethereum, this is an important step in the right direction, with infrastructure improving significantly since the last cycle. The increased activity and transaction volume on the Arbitrum and Base chains in recent months may be just the tip of the iceberg of what is to come in this cycle.

Layer 3 Scaling

The initial versions of Ethereum rollups were Optimism and Arbitrum, both of which were optimistic rollups. Currently, there are a growing number of Layer 2 optimistic and zero-knowledge rollups, most of which are classified as general-purpose. The choice of which rollup an application chooses to run or build on depends on its required feature set and security requirements. For example, applications such as Uniswap can run on a general-purpose Layer 2 (such as Arbitrum One). However, if you are a crypto game or NFT project, or other application that requires higher throughput or extremely low transaction fees (such as $0.0001), you may need a different solution. This is where Layer 3 comes in.

Examples of Layer 3 frameworks include Arbitrum Orbit and zkSync Hyperchains. Although it is still in its early stages, some changes and improvements can be expected in the future. The general idea of ​​Layer 3 is to further scale Ethereum by creating highly customizable, cheap, fast, and interoperable chains with varying degrees of security and decentralization.

Degen Chain (DEGEN)

Degen Chain is an emerging innovative blockchain that was launched in January 2024 and quickly attracted attention, with its fully diluted valuation (FDV) exceeding US$2 billion within three months of its launch.

Degen Chain was initially launched on Farcaster’s Degen channel, a new social app that allows users to “tip” for quality content.

Degen is built using Arbitrum Orbit, settled to Base, and uses AnyTrust for data availability (DA). The initial enthusiasm for the chain caused the total locked value (TVL) to soar, but then stabilized, and the price of DEGEN also adjusted accordingly.

Sanko（DMT）

Another interesting Layer 3 application is Sanko, another chain built with Arbitrum Orbit, settled to Arbitrum L2, and using AnyTrust for data availability. Sanko focuses primarily on NFTs and gaming, taking advantage of the low costs and high throughput provided by Layer 3. Sanko’s native token, DMT, is set to perform well in 2024.

Dream Machine is an interesting application from Sanko L3, which is also a social and gaming platform. Sanko.TV combines gaming and streaming entertainment, and users can buy passes for their favorite streamers and gain access to private chat rooms, similar to how Friend.tech operates.

Sanko demonstrates the customizability of Layer 3 chains, showing its potential. The rise in DMT prices shows the continued interest in what Sanko is building, and the innovative nature of combining gaming and social is a compelling value proposition. Social applications are starting to gain momentum, so Sanko is definitely a project to watch.

The Future of Layer 3

The Layer 2 mainnet has been online for a few years and has made significant progress in scaling Ethereum. While the scaling roadmap continues to advance, Layer 3, which is highly customizable, seems like the logical next step. There are already many projects experimenting on Layer 3 and have made varying degrees of progress.

However, an interesting use case and a short-lived craze don't necessarily mean a good investment. In both of the examples we discussed (DEGEN and DMT), the native tokens experienced significant volatility and the chains were far from proven. However, now that Layer 2 has expanded and transaction fees only cost a penny or two, the opportunities and use cases have increased significantly. It's important to track application type trends due to increased throughput and customizability, and Layer 3 will certainly present some interesting investment opportunities.