It’s no secret that blockchains often have multiple layers. Layer 1s such as Ethereum are great at maintaining security, but might not be always easily accessible to regular users due to high gas fees.Layer 2s solve this by offering lower fees while tapping into L1 security. This lets users interact with dapps and manage tokens and NFTs without having to worry about gas fee spikes too much.But is this the endgame? Likely not. There are now existing and upcoming Layer 3s which offer higher scalability, speed and a slew of other features that aim to make this further layering worth it.This week we are exploring Layer 3s and their impact on chains, users and protocols.
Let’s first briefly revisit Ethereum Layer 2s. Layer 2 blockchains are chains built on top of Ethereum with the goal of offering cheaper transactions with predictable fees while not compromising on security and maintaining reasonable (and eventually complete) decentralization. There’s no shortage of them: there are over 30 existing or upcoming layer 2s. Most of them are EVM-compatible which ensures that smart contracts originally deployed on Ethereum can be ported without much hassle.You could learn more about L2s and EVM compatibility in one of the previous editions of the Balancer Report.
The fact that the Ethereum ecosystem is rich with all kinds of L2s raises a reasonable and rather straightforward question: why do we need L3s?Most L2s are general-purpose blockchains. This means that they support a large number of use cases and cater to a very wide audience. While this is great for ecosystem growth, it doesn’t leave a lot of room for customization. This is even more evident when it comes to dapps outside of the DeFi spectrum. Gaming, social, and art-focused apps don’t necessarily have the same needs as DEXs, aggregators and lending protocols. And yet most L2s (and L1s for that matter) cater to the latter category. This is what L3s are here to address.
Layer3s are also called app chains and the name holds the key to the approach. Instead of competing for limited block space with thousands of other protocols on an L2, apps can deploy their own chains used only by their users. This chain would then settle on its L2 offering quick on- and off-ramps with the same level of security and much, much higher scalability and flexibility.
This immense scalability can also be adjusted based on historical usage and growth. There’s no way to account for all potential gas spikes on general purpose chains, but app chains make it possible and let their deployers prepare accordingly. This translates into smoother UX and uninterrupted chain usage even for the most fee-sensitive use cases.
Another benefit of having a dedicated app chain is its relative independence from the base layer. Changes that concern Ethereum take years to implement. Changing something about major L2s would likely not take this long if there is a consensus, though it would still take quite a bit of time. Some protocols might want to iterate much faster and this is enabled by app chains. Controlling your own Layer 3 allows you to implement and reverse any changes based on user feedback, without impacting the broader ecosystem or needing its approval.This independence extends to governance meaning that L3s are free to host their own votes and structure their voting systems in a way that works best for them. This could mean mirroring the setup of their settlement L2s just as well as coming up with novel concepts.
Layer 2 chains are already embracing this by offering L3 deployment frameworks. Some of the most notable examples are Starknet and Arbitrum. Starknet offers a sequencer for Layer 3 deployment named Madara, whereas Arbitrum facilitates Layer 3 deployment via its Orbit initiative.The flexibility that Layer 3 chains bring is yet another innovation pushing the space forward. It embraces experimentation and growth, and welcomes a diverse set of users and builders ready to explore Web3. Balancer remains at the forefront of innovation and the protocol is ready to welcome new projects to the ecosystem. Get in touch if you’d like to build with Balancer.
Balancer DAO shares an article outlining the protocol’s plans to supercharge the growth of yield-bearing assets with the release of Balancer V3. Yield-bearing assets form the backbone of the latest wave of DeFi applications and yet very few protocols can provide efficient liquidity for them. Balancer stands out as it has embraced such tokens thanks to a number of pools that not only offer deep liquidity and efficient pairings, but also account for additional yield generation. V3 aims to take this up a notch by offering a streamlined approach to developer experience, 100% boosted pools, base pairings for LSTs, and more. The update will include Balancer hooks, a novel protocol feature which opens up more customizability options.
Opal becomes the latest Balancer grant recipient. The protocol will work on creating omnipools for LSTs and LRTs as well as stablecoins that are part of the Balancer ecosystem. The grantee protocol will also collaborate with Aura to leverage additional boosts and create efficient and sustainable liquidity flywheels.
Beethoven X has wrapped up their 55th gauge round. The total amount of bounties up for grabs reached $9000 with the “Dropping the fBOMB!” pool on Fantom getting the most votes. The protocol ROI stood at 76.42%.The gauge updates went into effect on Wednesday February 7.
Aura Finance initiates a governance proposal aiming to optimize AURA’s tokenomics and emissions. One of the key parts of the proposal concerns an immediate 12% drop in token emissions further supported by gradual biannual decreases. The change should not affect the APRs. Another step towards optimization will include a number of distinct actions:AURA/ETH liquidity boost
Fee structure adjustments
The main goals of the proposal include strengthening Aura’s financials, maintaining sustainable APRs, and offering enhanced liquidity.
As always, Hidden
Hand incentives can be explored here, the current round ends on February 15, 2024.
Source : Balancer Protocol by Balancer Ballers / Feb 12, 2024