Layer 3 refers to layers of protocols, protocols and applications that are built on top a blockchain platform. It is the third layer in the blockchain technology stack and sits on top the layer 2 protocols as well as the underlying layer 1.
Layer 3 protocols and apps are intended to enhance the functionality and capabilities of a blockchain platform. This makes it more valuable and useful for users. These protocols and apps can be used to create smart contracts, decentralized finance (DeFi), platforms, voting systems, and supply chain management tools.
The Ethereum Virtual Machine (EVM) is an example of a layer-3 protocol. It is a runtime environment that runs smart contracts on the Ethereum Blockchain. EVM allows developers write and deploy smart contract on Ethereum, allowing a wide variety of decentralized applications (dApps), to be built on top.
The Lightning Network is another example of a layer-3 protocol. It is a second-layer payment protocol that is built on top the Bitcoin blockchain. By creating an off-chain network of payment channels, the Lightning Network allows users make quick, inexpensive, and private Bitcoin transactions. This can reduce the overall load on the main Blockchain, making it more efficient as well as scalable.
Layer 3 applications are decentralized applications built on top layer 2 protocols and layer 1 infrastructure. These applications are typically designed for a specific purpose or use case, such as enabling users trade cryptocurrencies or manage their digital assets or voting on governance decisions.
A decentralized exchange (DEX) is an example of a layer-3 application. This is a platform that allows users buy and sell cryptocurrency directly with each other without the need for any central authority. DEXs are built using layer 1 blockchain infrastructure and use smart contracts and layer 2 protocols to facilitate trades.
A layer 3 application could also be a decentralized financial (DeFi) platform. This is a financial platform built on top a blockchain platform and allows users to access a variety of financial services such as lending, borrowing and trading without having to go to a traditional bank. Layer 2 protocols such as the Lightning Network or the EVM are used to build DeFi platforms. They use smart contracts and other Blockchain-based tools for financial transactions and managing risk.
Layer 3 in blockchain is a collection of protocols and applications that are built over a blockchain platform. They add functionality and value to the infrastructure. Layer 3 protocols include EVM and Lightning Network. Layer 3 applications are DEXs, DeFi platforms and DEXs.