Bryan Pellegrino: Base’s shift signals independence from OP Stack, why fragmentation is the future of blockchain, and the rising importance of interoperability for institutions

Key takeaways

• Base is breaking away from the OP Stack, signaling a major shift in Ethereum’s layer two ecosystem.
• The move by Base reflects a reaction to being perceived as second-class citizens in the scaling roadmap.
• Switching chains to follow outdated trends is not a strategic move.
• Layer twos that don’t inherit layer one’s security may become independent blockchains.
• The super chain’s development is now more focused on speed and pragmatism.
• Fragmentation in the Ethereum ecosystem may increase as ETH alignment loses its premium.
• High coordination costs make independent work more efficient in tech development.
• Base holds 120 million OP tokens, valued at about $40 million.
• The future of blockchain is likely to see more fragmentation, not consolidation.
• Institutions care more about interoperability than expected, driving blockchain adoption.
• Chains should focus on their execution while maintaining interoperability.
• The crypto market structure for tokens is currently broken, with a shift towards trading perps and meme coins.
• Institutions are deploying larger capital amounts compared to typical crypto funds.
• The cost of maintaining open source software has collapsed, favoring its growth.

Guest intro

Bryan Pellegrino is the CEO and co-founder of LayerZero Labs, a cross-chain interoperability protocol that enables applications to communicate seamlessly across multiple blockchains. Before building LayerZero, Pellegrino was a professional poker player and serial entrepreneur who founded several tech companies, including Coder Den and OpenToken. His work at LayerZero addresses one of crypto’s most fundamental challenges: enabling secure, frictionless communication and asset transfer between different blockchain networks.

Base’s strategic shift in the Ethereum landscape

• “Base has decided to break away from the optimism stack… they say they’re going to remain compatible with the op stack doing upgrades etcetera etcetera.” – Bryan Pellegrino
• Base’s decision marks a significant strategic shift in Ethereum’s layer two solutions.
• “It feels like this is at best like hey we’re gonna maintain backwards compatibility for some time before we then go and do our own chain… if we’re now second class citizens in this whole scaling roadmap what are we doing here.” – Bryan Pellegrino
• The move could be seen as a reaction to perceived second-class status in the scaling roadmap.
• Understanding the dynamics of Ethereum’s layer two solutions is crucial to grasping Base’s motivations.
• Base’s independence signals a potential shift in the competitive landscape of Ethereum layer twos.
• The decision reflects broader concerns within the layer two community about their role in scaling.
• Base’s move may influence other projects to reconsider their alignment with the OP Stack.

Implications of chain independence and interoperability

• “If l twos aren’t actually inheriting the underlying security of the l one then they’re really just like alt l ones that pay rent to ethereum.” – Bryan Pellegrino
• Layer twos not inheriting layer one’s security may evolve into independent blockchains.
• The relationship between layer one and layer two blockchains is crucial for understanding their security models.
• “We don’t want to be beholden to someone else’s technical roadmap for the execution on our own chain… give us really good bridges and let us own our own shit in our house.” – Bryan Pellegrino
• Chains should prioritize their execution while maintaining interoperability with others.
• Focus on non-custodial on-chain operations is the most sensible approach for chains.
• The shift from custodial to non-custodial solutions highlights a trend towards decentralization.
• Chain independence and interoperability are key to strategic decision-making in blockchain ecosystems.

The evolving landscape of blockchain fragmentation

• “I think that you know the future looks like more fragmentation not less.” – Bryan Pellegrino
• The future of blockchain is likely to see more fragmentation rather than consolidation.
• Institutional players seeking to own their stack contribute to this fragmentation trend.
• “This is like waning now and so whether or not you’ll start to see this fragment happening more and more who knows.” – Bryan Pellegrino
• Fragmentation may increase as the premium for ETH alignment wanes.
• The competitive dynamics in the blockchain space are shifting towards more fragmented ecosystems.
• Fragmentation could impact future development and collaboration among projects.
• Understanding the role of institutional players is crucial in shaping the ecosystem’s future.

Institutional interest and the role of interoperability

• “You would be shocked at how much they do care about interop which again was was kind of weird to me.” – Bryan Pellegrino
• Institutions care more about interoperability than one might expect.
• Interoperability is crucial for effective asset distribution and client service.
• “I think it’s bullish for crypto that people have figured out that like the interop is actually where the value.” – Bryan Pellegrino
• The focus on interoperability is bullish for the future of crypto.
• Institutional behavior indicates a shift towards valuing interoperability in blockchain.
• The operational motivations of institutions emphasize the importance of asset distribution.
• Interoperability will drive future growth and adoption in the crypto industry.

Challenges in crypto community and branding

• “His experience with this was as bad as ours dealing with those people like as but he has no upside in crypto so imagine if you were dealing with the people that we’ve been dealing with for the last like three years with literally no upside whatsoever.” – Bryan Pellegrino
• The crypto community can be overwhelmingly negative, especially for those without financial upside.
• Negative experiences can lead to a desire to disengage from the crypto ecosystem.
• “We have got to figure out how to fix like the global crypto branding because this is like the same the the coin that’s ad for the super bowl is like the same thing where like the groans and the moans like this is we have done this to ourselves guys.” – Bryan Pellegrino
• The current state of global crypto branding is detrimental and needs to change.
• The presence of bot armies on social media disrupts genuine interactions.
• Understanding the challenges of community interactions is critical for industry retention.
• Addressing branding and community issues is essential for crypto’s growth and public perception.

The role of traditional finance in the crypto space

• “If we don’t present the right kind of tech that it will get consumed by them you know they’re so much bigger.” – Bryan Pellegrino
• Traditional finance institutions’ presence in crypto is inevitable, driving technological adaptation.
• Trust in counterparties is a significant issue in traditional finance.
• “We can’t trust the counterparties to be good actors because they don’t have to be because it’s not a blockchain it’s a database.” – Bryan Pellegrino
• The contrast between blockchain’s trustless nature and traditional finance’s dynamics.
• Institutions are motivated by fear of disruption and profit potential.
• Understanding institutional motivations is crucial for crypto’s integration with traditional finance.
• The involvement of traditional finance organizations in altcoins is a positive development.

Security challenges and the role of AI

• “I have been very suspicious i guess for the last like you know little while about why old contracts keep getting exploited right it seemed too coincidental that we just had all of these weird edge…” – Bryan Pellegrino
• The frequency of exploits in old contracts suggests a deeper issue.
• AI models are currently better at exploiting vulnerabilities than protecting systems.
• “This graph has the exploit like they’re very good at exploiting they’re actually better at exploiting than hatching and protecting.” – Bryan Pellegrino
• Paradigm is leveraging on-chain data and AI models to improve smart contract security.
• The advancement of tools like Codex 5.3 can significantly improve security in smart contract development.
• Automated tools for security assessments can be more effective than human audits.
• The optimization of AI models has primarily focused on the top layers, hindering effectiveness.

Open source software and its implications for security

• “The cost of maintaining it has collapsed to zero… one of the largest impediments to maintaining open source software is gone and so open source will win it will absolutely win.” – Bryan Pellegrino
• The cost of maintaining open source software has effectively collapsed to zero.
• Open source software is more secure due to a broader range of contributors.
• “The reason is is that the incentives for the bad actors to go in even if you’re closed source and find the issues and then exploit them is higher than like your team can protect however once you open source you have a wider variety of people…” – Bryan Pellegrino
• The argument that closed source software is more secure is fundamentally flawed.
• The growth of open-source tools is essential for the future of security in the crypto space.
• Open source governance may see the emergence of autonomous agents managing contributions.
• Understanding the debate between open source and closed source security models is crucial.

Future trends in blockchain and AI

• “You’re gonna see open source repo where there’s an autonomous agent… they’ll figure out how they do governance of like who gets to merge to maine.” – Bryan Pellegrino
• The emergence of autonomous agents managing open source software is anticipated.
• The future will see more agents interacting with smart contracts, leading to new structures for managing exploits.
• “It’ll be interesting to see if like we can create additional automated like sort of trustless structures to like so that the agent when it’s like let me exploit this let’s go we give them like a path of viability to like either report or… safe harbor.” – Bryan Pellegrino
• Creating automated, trustless structures for accidental exploits is necessary.
• The deployment of tools will lead to a rapid equilibrium in security practices.
• Public markets will eventually care about the right vehicles for crypto exposure.
• Understanding future trends in blockchain and AI is crucial for anticipating industry developments.