Xai, the 'Layer 3' for Games: What a Chain on a Chain on a Chain Means

Blockchain people love layers. Ethereum is layer 1, the base. Arbitrum, one of the biggest scaling networks, is a layer 2 that batches transactions and settles them on Ethereum. And in June 2023, a new project announced it would sit one floor higher still, as a layer 3 built only for games. It was called Xai.

The pitch was simple: games need cheap, fast transactions, lots of them, and room to run bigger programs than a general network allows. Stack a game chain on Arbitrum, the thinking went, and you get Arbitrum's speed, Ethereum's security and a network tuned just for play.

What a layer 3 actually is

Think of it like a city. Ethereum is the national bank: slow, careful, trusted by everyone. Arbitrum is a big regional branch that handles everyday business quickly and reports totals to the national bank. A layer 3 like Xai is a branch inside a shopping mall that only serves gamers. It handles their transactions in bulk and reports to the regional branch, which reports to the national bank.

Xai was built with Arbitrum Orbit, a toolkit for launching new chains in the Arbitrum ecosystem, and was the first layer 3 to work directly with Offchain Labs, the company behind Arbitrum, on infrastructure, marketing and product support. The Xai Foundation leads its development.

Built for gamers, on paper

Xai's feature list was aimed squarely at people who have never used crypto:

• Account abstraction, which lets a wallet behave more like a normal game account, automating steps and hiding some of the blockchain's complexity. (Our account abstraction explainer goes deeper.)
• Higher gas and contract-size limits than general networks, so developers can put more game logic on-chain.
• Lower fees and faster transactions, because the chain isn't competing with DeFi traders for space.

The first committed studio was Ex Populus, whose team had worked at Pixar, Ubisoft and Activision Blizzard. It had previously built on Solana and planned to move to Arbitrum and then Xai. Its two games in development were Final Form, a rogue-lite auto-battler, and LAMOverse, a hover-car action shooter. Co-founder Soban Saqib said choosing Arbitrum Orbit showed the ecosystem "understood scaling as a requirement for gaming in web3."

Other projects followed: Crypto Unicorns announced a move from Polygon, BattlePlan from Pixel Vault and Reboot planned to migrate from Arbitrum Nova, and The MIX said it intended to launch more than 100 games on Xai.

The airdrop and the Sentry Nodes

Xai's token launch in early 2024 was one of the biggest gaming airdrops of the cycle. 125 million XAI, about 5% of the supply, went to gamers. It was worth nearly $70 million at launch and around $140 million less than a week later, as the price climbed. (Token prices are volatile; those are dated figures from early 2024, not a guide to today.)

XAI is the chain's gas token. Holders can convert it into esXAI, an escrowed version that can be staked.

Then there are Sentry Nodes. Xai sold licences, called Sentry Keys, as NFTs; owners run software that watches the network. In the first version, Sentry Node owners could stake up to 25,000 esXAI. A second version in April 2024 opened staking to any esXAI holder through pools run by Sentry Key owners, with reward multipliers that grow with the pool, up to 6x at the top "diamond" tier.

The gamer's-eye view

Strip away the tokenomics and Xai is a bet on a single idea: games deserve their own lane. That idea is reasonable. But the layer model also adds steps. Moving assets from Ethereum to a layer 3 can mean two bridges, and every extra hop is another place for confusion, delays or security risk.

There's also a pattern worth noticing. Much of Xai's early attention came from its airdrop and node sales rather than from a breakout game. That's common across web3 gaming: the infrastructure gets funded before the hit arrives, and sometimes the hit never does.

Why it matters

Xai is the clearest example of a "chain on a chain" built purely for games. If its studios ship games people play for fun, it will prove that the extra layer was worth it. If not, it will join the long list of gaming networks with more infrastructure than players. Either way, the layer-3 idea, a dedicated gaming lane on top of an existing network, has spread well beyond Xai.

For how this fits with other gaming chains, see our long read on Polygon and its rivals, and our gas fees explainer for why any of this layering exists.