Seven Layer-3 Projects Powering the Next Evolution of DeFi

Layer 1 chains birthed DeFi. Layer 2 scaled it. And now Layer 3 is turbocharging it. There’s a lot more words that could be expended on describing the relationship between the various blockchain layers, but in essence that’s what it comes down to.

 

The industry which sprang to life on L1 (Ethereum) and then spread like wildfire across L2 (Optimism, Arbitrum, Polygon – even though Polygon is technically a sidechain) is now being enhanced on Layer 3. But in this case, users don’t need to bridge their assets there to experience its benefits – L3 goes direct to them, improving the products they already use.

That’s because Layer 3 is the execution and enhancement layer of the blockchain stack, adding specialized logic and modular functionality on top of existing networks. At least that’s the case when it comes to L3 infra providers – protocols supplying DEXs with assets such as data and liquidity.

Not all L3 projects are infra-focused of course: several on our list are gaming-oriented, and elected to deploy on Layer 3 to escape the hustle and bustle of existing chains, while staying within the same ecosystem – usually EVM. But before we examine our seven L3 projects and chart the progress they’re making in powering DeFi, we should clarify exactly what Layer 3 is and what it can do.

What Is Layer 3? 

Layer 3 builds on top of Layer 1 and 2 infrastructure, but its purpose is fundamentally different. Where L2 tends to be about scaling transaction throughput, L3 focuses on execution logic and customization. It provides application-specific environments where complex operations such as advanced trading strategies or gaming logic can run without burdening base layers.

In practical terms, Layer 3 allows developers to create tailored execution environments while still inheriting the security and settlement guarantees of underlying chains. For DeFi, this is helpful because the latest generation of dapps typically require conditional execution and sophisticated automation. Running all of that directly on L1 or L2 can be inefficient and costly.

Letting Layer 3 take the strain, however, enables a modular approach whereby specialized logic can operate independently while settlement remains anchored to secure networks. The result is a more flexible stack capable of supporting complex financial primitives without sacrificing decentralization.

Now let’s take a closer look at Layer 3 in action by considering the leading projects deployed on this level of the blockchain stack.

The L3 Projects Redefining DeFi Performance

1. Orbs: The Execution Specialists

Orbs supplies decentralized Layer 3 infra designed to enhance smart contract capabilities across multiple chains. Products such as dLIMIT, dTWAP, and Liquidity Hub enable sophisticated trading functionality such as advanced order types and aggregated liquidity routing. Acting as an execution layer on top of existing networks, Orbs allows DeFi applications to deliver richer functionality while maintaining composability.

• Problem Solved: Deep liquidity and advanced functionality are complex challenges for DEXs to solve unilaterally. With Orbs, they don’t have to.

• DeFi Impact: Orbs raises the bar for onchain user experience through institutional-grade tools such as Liquidity Hub, which allows DEXs to deliver CEX-tier trading.

2. Cartesi: The Linux Bridge

Cartesi provides app-specific rollups that allow developers to use a Linux Virtual Machine to run their code. It can be deployed as an L2 or an L3 on top of existing scaling layers. Enabling complex computation through a Linux-based execution environment allows developers to run more expressive applications than traditional smart contracts permit.

• Problem Solved: Cartesi overcomes the limited programming flexibility on blockchains by allowing developers to use familiar software stacks while still benefiting from blockchain security.

• Impact: Cartesi allows developers to use 30 years of existing software libraries such as Python and C++ to build decentralized apps that were previously impossible.

3. zkLink: The Liquidity Aggregator

zkLink (specifically zkLink Nova) is the first aggregated Layer 3. It uses zero-knowledge technology to unify fragmented liquidity from across various Layer 2 rollups including zkSync, Arbitrum, and Optimism. zkLink addresses fragmentation by allowing applications to access liquidity and assets across chains through a unified execution environment.

• Problem Solved: Liquidity is currently trapped on separate chains. If you want to trade a token on Chain A using funds on Chain B, it;s a bridging nightmare.

• Impact: zkLink creates a single, unified environment where assets from any connected L2 can be traded seamlessly, providing a multi-rollup experience that feels like a single exchange.

4. Xai: Frictionless Gaming

Xai is a gaming-focused Layer 3 built on Arbitrum. Designed to bridge the gap between Web3 games and conventional games by abstracting away the blockchain components entirely, Xai was one of the first L3s to launch. It remains a case study in how L3 can be used to remove complex logic from L1/L2 while still maintaining decentralization.

• Problem Solved: Gamers hate wallets, gas fees, and sign-confirm pop-ups.

• Impact: Xai allows for gasless transactions and account abstraction, meaning millions of traditional gamers can own in-game assets without ever knowing they are interacting with a blockchain.

5. DEGEN: Community Fuel

Born from the Farcaster social ecosystem, DEGEN Chain is an L3 built on top of Base network. It serves as a dedicated environment for the DEGEN memecoin community to experiment with tipping and social dapps. DEGEN demonstrates how L3 can enable entirely new economic models rather than simply improving existing ones.

• Problem Solved: High transaction costs on general-purpose chains make micro-tipping (sending $0.10 to a creator) impossible.

• Impact: On a dedicated L3, the DEGEN community can process thousands of social micro-transactions for fractions of a penny, fueling a new era of decentralized social media.

6. PIP: The Social Payment Layer

PIP positions itself as a “Layer 3 for the Social Web,” focusing on the intersection of social media and global payments. It addresses the usability gap in crypto payments by providing tools that integrate with existing platforms, allowing users to send and receive value without navigating complex wallet workflows.

• Problem Solved: Sending money across social platforms (Twitter, Twitch, YouTube) is historically restricted by borders and high fees.

• Impact: PIP enables plug-and-play payments, allowing users to tip or pay for goods directly through social interfaces without needing a centralized payment processor such as PayPal.

7. Aavegotchi: The L3 Game Console

Originally a DeFi-NFT project on Polygon, Aavegotchi is launching Gotchichain (also known as Geist), an L3 on Base designed to be a dedicated “gaming console” for its ecosystem. Leveraging L3 infrastructure enhances gameplay mechanics and enables more complex in-game economies while remaining connected to the broader L2 landscape.

• Problem Solved: Gaming assets require high-speed interactions that can be interrupted by heavy DeFi traffic on a general-purpose L2.

• Impact: Gotchichain creates a members-only environment optimized specifically for gaming performance, ensuring that game logic runs smoothly regardless of what else is happening on the Base network.

Why Layer 3 Will Become DeFi’s Innovation Layer

Layer 3 represents a shift in how the blockchain stack evolves. Instead of competing solely on throughput or fees, networks are able to compete on the sophistication of their execution environments.

This modular approach allows innovation to happen without requiring fundamental changes to base layers. New financial primitives and automation frameworks can be deployed at the execution layer while settlement remains secure and decentralized.

In many ways, L3 resembles the application layer of the internet – which is where most innovation ultimately occurs.

Where L3 Is Headed Next

Several trends are poised to define the next phase of Layer 3 adoption.

First, more DeFi protocols will adopt modular execution layers to deliver advanced features without increasing smart contract complexity. Second, cross-chain L3 infrastructure will continue to reduce liquidity fragmentation. Third, vertical-specific L3s – particularly for trading, gaming, and payments – will mature into full ecosystems.

Thanks to L3 innovation, DeFi is entering a modular phase where the base layer provides the “truth” and Layer 3 provides the intelligence. Over the next 12 months, expect to see further vertical specialization such as DeFi/AI-specific L3s that offer hardware-accelerated execution.

There’ll also be more projects following the Xai/PIP model, whereby the user never even sees a bridge or has to grapple with a gas fee. At the same time, cross-L3 interoperability will improve dramatically.

Even if you don’t directly use a L3 this year, if you’re doing anything on L1 or L2, there’s a good chance you’ll unwittingly interact with a Layer 3 protocol supplying the liquidity, data, or execution environment. Which is exactly the way Layer 3 was designed to be: invisible yet indispensable.

 

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