Author: 0XSTRUBE; Compiled by: Deep Wave TechFlow
In the past few years, Ethereum has been on its path Significant progress has been made on the graph, 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.
Before Dencun, Layer 2 transaction fees were approximately $0.50, but now transaction fees on most Layer 2 chains are only one or two cents. This change greatly facilitates the expansion of new applications on Ethereum.
Since the Dencun upgrade, the daily transaction volume of Arbitrum and Base has exceeded the Ethereum mainnet, and this trend continues unchanged. 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 increase in 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 extension
The initial versions of Ethereum rollups are Optimism and Arbitrum, both optimistic rollups. Currently, there are an increasing number of Layer 2 optimistic and zero-knowledge rollups, most of which are classified as general purpose. Which rollup an application chooses to run or build on depends on its desired 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 early days for Layer 3, you can expect some changes and improvements in the future. The general idea of Layer 3 is to further extend Ethereum by creating chains that are highly customizable, cheap, fast, and interoperable, with varying degrees of security and decentralization.
Degen Chain (DEGEN)
Degen Chain is an emerging innovative blockchain. Launched in January 2024, it quickly attracted attention, with its fully diluted valuation (FDV) exceeding $2 billion within three months of launch.
Degen Chain, originally launched on Farcaster's Degen channel, is a new social application 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 craze for the chain caused total value locked (TVL) to spike, but then leveled off and the price of DEGEN adjusted accordingly.
Sanko (DMT)
Another interesting Layer 3 application is Sanko, which is Another chain built using Arbitrum Orbit, settling to Arbitrum L2, and using AnyTrust for data availability. Sanko focuses primarily on NFTs and games, taking advantage of the low cost 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 of Sanko L3. Sanko is also a platform integrating social networking and gaming. Sanko.TV combines gaming and streaming entertainment, allowing users to purchase 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 increase in DMT prices demonstrates continued interest in what Sanko has built, and combining the innovative nature of gaming and social is a compelling value proposition. Social apps are starting to gain momentum, so Sanko is definitely a project to watch.
The future of Layer 3
Layer 2 mainnet has been online for several years and is expanding There has been significant progress on 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.