As the Ethereum ecosystem evolves, L3s have emerged as the next frontier.

While the conversation today on L3s tends to focus on scaling, L3s represent an important leap forward toward unparalleled community-centric customization, architectures, and economic models. L3s offer a new compelling vision for networks built for communities and their specific needs, use cases, and applications.

However, the path to widespread L3 adoption is far from straightforward. From economic sustainability to cross-chain interoperability, L3s face a range of challenges. There are still possible futures in which L3s become a net negative to the ecosystem, particularly if they’re unable to better serve communities, sufficiently decentralize, or break from the status quo.

Below we outline not only why L3s are one of the most important developments in the industry but also what are the biggest challenges for L3s to succeed long-term.

Opportunity

Let’s begin with the opportunity for L3s. By building on the foundations laid by Ethereum and its growing ecosystem of L2s, L3s open up new paths for scalability, customization, and community ownership.

Scalability

The most obvious and widely discussed benefit of L3s is the potential for dedicated blockspace to horizontally scale onchain applications. By posting data to L2s and alternative data availability layers rather than to L1, L3s have significantly lower operating, bridging, and gas costs. As a result, L3s make mainstream applications more viable technically and economically.

For example, Syndicate is working with both Unite and Gold, two gaming-focused L3s. Unite, a team of mobile gaming pioneers and veterans, is building an L3 and SDK for mass-market, onchain mobile games. Unite is working with 100+ games with 300K+ monthly active users. Gold is building an L3 for onchain strategy games, where games are powered by its game engine that exists entirely onchain as dozens of smart contracts on its L3. Both Unite and Gold are able to provide a highly custom and optimized environment for game developers to create immersive, scalable experiences that push the boundaries of what's possible with onchain gaming today by leveraging L3s.

More L2 ecosystems are starting to realize the importance and inevitability of L3s. For example, Mode recently shared its vision for Flare L3s on its L2, and B3 (ex Base employees) is building an ecosystem of gaming-focused L3s on top of Base’s L2. And this is only what has been publicly announced so far—there are many more L2s actively preparing for L3s in the coming months.

Customizability

Today, general-purpose L1s and L2s provide developers with the key benefits of scale and shared liquidity, but as a consequence, they’re limited in their ability to customize or optimize the chain experience for any particular developer, user, community, application, or ecosystem. L3s offer modularity and customization options far beyond what's possible with general-purpose L1s or L2s, allowing for the creation of highly tailored blockchain environments, platforms, and economies.

One powerful example is custom gas tokens. Degen Chain, an L3 we helped launch earlier this year, uses its native community token $DEGEN as the gas token for its L3. This immediately infuses $DEGEN with utility across all applications, games, and interactions on its L3, allows for more granular control over the network's economy, and enables novel incentive structures to be built.

Another example is the ability to more granularly subsidize (and tax) specific activities, applications, or users on the network. By running the chain, L3 operators can implement custom economic policies that incentivize some behaviors while discouraging others. For example, an L3 focused on onchain content might subsidize mints for high quality creators while taxing engagement farmers or spam. Ham Chain is using Syndicate’s Smart RPC today for this purpose—to subsidize the adoption of novel onboarding, tipping, and social experiences on its L3.

There are many other ways to customize L3s. For example, by running the chain, teams can now bring data onchain that would previously be uneconomical, like social data from Farcaster or X, as Ham Chain is doing with Syndicate’s Mirrors. Teams are also exploring precompiles to build complex functionality tailored to specific applications, smart contracts, and use cases directly into the EVM for their L3. Some examples include RIP-7212 for Apple Wallet support, Groth16 for zk use cases, and more.

This level of flexibility is only possible when a community has control over its own network and stack. This is what L3s are uniquely suited for.

Community Ownership

L3s importantly enable true, community-driven models of ownership and control of a network, unlocking the full potential of web3. This provides communities with the ability to create their own networks that best reflect their values, needs, and goals.

For example, consider "EcoChain," a hypothetical L3 focused on environmental sustainability and projects. EcoChain could implement a "proof-of-greenness" mechanism at the network level, where nodes are permissioned and rewarded based on their use of renewable energy and support of green projects. These nodes could also decide on the network’s key parameters such as the relative weighting of different types of renewable energy or the allocation of network fees to support environmental projects. A number of L3s Syndicate is working with are designing these kinds of community-driven operating, reputation, and incentive models for their networks.

This degree of integration of community at the network level creates a greater sense of ownership and belonging, leading to higher engagement, growth, and resilience.

Challenges

While L3s offer infinite possibilities, the challenges are obvious. Without clear solutions to these problems, it’s unlikely that L3s will be able to effectively scale Ethereum long-term.

Centralization

The first and most obvious challenge with L3s is centralization. Because L3s are still so new, almost every L3 today relies on centralized infrastructure. While necessary in the near-term, this critical dependency not only raises questions around liveness, scalability, and costs, but it surfaces larger, existential issues related to L3s’ resilience, sustainability, and ability to create and capture value long-term. As a result, “progressive decentralization” will become an increasingly important issue for L3s in the near future. Increased levels of decentralization will be needed for a network to best serve, reflect, and evolve to meet the needs of its community long term.

Interoperability

Enabling seamless experiences and transactions across different L3s, L2s, and L1s will become increasingly challenging in a world of many chains with different tech stacks, consensus mechanisms, block times, and more. While some solutions like the Superchain are already in the works, standardizing cross-chain communication and messaging while preserving the unique benefits of each L3 will be a difficult balance to strike and has not been solved for yet. Instant or near-instant cross-chain transactions will be needed for L3s to truly scale to enable better experiences for developers and users.

Economic Sustainability

While the gas costs of L3s may be lower than L1s or L2s, their operating costs are still sizable. Ensuring that revenues can at least cover network operating costs is crucial for L3s’ long-term sustainability.

Today, most L3s struggle with limited revenue streams. Sequencer fees—a primary source of value for L2s—are minimal for L3s due to lower transaction volumes and gas costs relative to L2s. This creates tension whereby L3s must balance the need for revenue with the desire to keep gas fees low. As a result, many L3s operate at a loss today.

L3s face a tough dilemma. Increase fees to boost profitability at the expense of negating one of L3s’ key advantages: low transaction costs for users. Meanwhile, L2s are continuing to bring down fees to levels competitive with L3s. For example, Base continues to work its way towards its 1 Ggas/second target. Base’s most recent increase to 8.125 MGas/second pushed transaction fees consistently below $0.01. The cost of an ETH transfer on Base is currently $0.0005. This reduction of gas fees on L2s raises the important question for how L3s will compete if their sole competitive advantage is lower fees. Finding innovative economic models that can generate revenue without compromising affordability is a significant challenge. New approaches or models must emerge.

The Path Forward

L3s represent a new frontier of innovation in the Ethereum ecosystem, offering rich possibilities for enhanced scalability, unprecedented customization, and true community ownership. The ability to create specialized networks optimized for specific use cases, coupled with the flexibility to implement novel economic models and governance structures, positions L3s as a powerful tool for addressing some of the most persistent challenges in scaling onchain activities today.

If you are exploring any of these opportunities or challenges for L3s, or have other ideas and questions, we invite you to reach out. Our team is dedicated to collaborating with forward-thinking teams to push the boundaries of what is possible with L3 technology. Whether you’re looking to build, customize, or simply learn more, we are here to support you. We also encourage you to join the conversation in the /l3 channel on Farcaster.

The Opportunities and Challenges of L3s