Layer3 discussion | 0xHamz: Is it necessary to build L3?

"Why are people starting to build Layer 3 on top of Layer 2? They could just keep pretending to be Ethereum's second layer and make more money." Well-known crypto influencer @0xHamz questioned on Twitter. Recently, multiple Layer 2 development teams have announced plans to develop Layer 3. What are @0xHamz and netizens' thoughts on this?

Note: In January 2022, 0xHamz warned of the danger of UST/LUNA, which collapsed in May; he often shares interesting perspectives, such as: Cryptocurrencies deconstruct Ponzi schemes.

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0xHamz: Is Building L3 Necessary?

0xHamz states: "Why are people starting to build Layer 3 on top of Layer 2? They could just keep pretending to be Layer 2 of Ethereum and make more money." He believes that, in terms of valuation returns, it doesn't seem like a Nash equilibrium.

In simple terms, he may be suggesting that building L3 on top of numerous L2 competitors may not be the optimal solution.

Footnote: Nash equilibrium is a concept in game theory, where if each player chooses their strategy and no player can benefit by changing their strategy while others remain unchanged, the set of current strategy choices and their corresponding outcomes constitute a Nash equilibrium. Taken from Wiki

0xHamz even mocked Solana, stating that for valuation arbitrage, one never knows when Solana will become L2. This implies a reliance on Ethereum to boost market interest.

Twitter user @AlgodTrading responded, "The interesting thing is that while L3 may bring more adoption to L2, L3 itself doesn't offer any benefits; it's just a way to get money from investors to build L2 for free."

0xHamz believes that L2 should just focus on being L2, unless L3 is funded by the L2 foundation.

Is Developing L3 Not Allowed?

"L3 can also have a business model!" Twitter user @PK100KETH responded, believing that besides scalability, blockchain should have other selling points.

Although he doesn't have any good suggestions, he thinks it's contradictory to invest in protocols that stack block space upwards and then complain when L2 development companies transition into L3 development companies.

Which Companies are Developing L3?

• Oracle company Pragma Network announced that it will deploy specialized applications on L3 on StarkNet this year, StarkNet being the ZK-Rollup L2 of zero-knowledge proof technology company StarkWare. StarkNet had previously published an article in 2021, explaining the vision of L3.
• Following the ARB airdrop, Arbitrum also announced support for L3 development with Arbitrum Orbit.

What Does Vitalik Think is the Significance of L3?

Ethereum founder Vitalik Buterin discussed this issue in September 2022 in a blog post, explaining that on blockchains adopting Rollup, adding another Rollup is not sustainable for scalability. He believes the specialized structure of L3 proposed by StarkNet is a relatively new idea, dividing L3 into application-specific and privacy-specific layers, as shown in the image below.

However, whether a three-layer structure is the best way to solve the problem remains a question. Why these specialized data should be anchored in L2 rather than L1 requires a very complex explanation; he believes L3 can solve the current issues of L2 confirmation time and fixed costs, but also through L2's structure.

Vitalik Buterin also believes it's still early to define L3, considering technologies like Validium for off-chain verification, proof aggregation schemes, ERC 4337 for account abstractions, on-chain privacy systems, etc., as L3, not all of which are meaningful.

What's the Significance of These Discussions?

0xHamz's argument seems to suggest that L3 is just hype, while Vitalik discusses whether L3 is the appropriate way to scale from a problem-solving perspective and how to address L2's flaws technically, delving deeper into the definition of layers.

According to the definition of L2, he believes it should:

• Enhance scalability
• Be a blockchain within a blockchain, with its own transaction processing mechanism and internal state
• Inherit full security from Ethereum

Layers that serve non-scaling needs, such as privacy, will play a crucial role. He speculates that as the L2 scaling ecosystem matures, more complex mechanisms will emerge.