- L1. A custom, standalone blockchain that has its own validator set is usually called an L1. An L1 should not rely on any other chain for any part of its Consensus Algorithm or being Trustless.
- L2. Contrary, a chain that uses an L1 for parts of its Consensus Algorithm is called an L2, such as Rollups in Ethereum that exist thanks to using parts the Consensus Algorithm of the L1 Ethereum.
Before Ethereum standardized the L1 and L2 terminology, Polkadot started to position itself as an L0, being one of the first systems that allowed other L1 chains to be built and secured on top of it. This terminology broke apart once Ethereum doubled down on the rollup-centric roadmap, which looked very similar to Polkadot, but in it Ethereum was positioned as L1. End of the day, this is arbitrary naming.
I don’t know much about L3+, but supposedly people have tried to build a rollup on top of another rollup and so on.