For a long time, Ethereum has been closely associated with decentralized finance, pioneering on-chain financial tools such as lending protocols and tokenized assets. However, the rapidly growing sector of perpetual futures, also known as 'perps,' has largely flourished on other platforms.
When asked where on-chain perpetuals are currently traded, traders are more likely to mention Hyperliquid or Solana rather than Ethereum. This is because perpetuals require extremely fast, low-cost, and high-frequency trading, which Ethereum's base layer was not designed to optimize. According to AJ Warner, chief strategy officer at Offchain Labs, the main developer firm behind the layer-2 Arbitrum, 'Perps demand frequent transactions, fast execution, and deep liquidity, making them a natural use case for the Arbitrum platform.' The distinction has become increasingly important as decentralized perpetual exchanges mature and attract institutional attention. Perpetuals are one of the most demanding applications in crypto, requiring thousands of rapid-fire updates, liquidations, funding payments, and order executions without interruption.
Ethereum's security-first architecture made it an ideal settlement layer, but its block times and gas costs made it an expensive place to run latency-sensitive trading applications. When GMX, a decentralized perps exchange, launched on Arbitrum in 2021, it established a template that many others would follow. 'Ethereum mainnet fees were prohibitively expensive, which naturally attracted perps builders to Arbitrum,' Warner said. Today, much of Ethereum's perpetual trading activity lives not on the Ethereum mainnet but on layer-2 networks like Arbitrum and Base.
Ethereum's layer-2 ecosystem has become a compromise, preserving Ethereum's security while dramatically improving trading performance. Chris Boulous of Dromos Labs argued that technical performance is only part of the story. 'Trading is effectively a network-effects business,' he said. 'You have to build where the liquidity and users currently exist.' That dynamic has become self-reinforcing, with protocols launching where traders already are, liquidity providers following the traders, and new applications building around existing liquidity.
Solana and Hyperliquid have built high-performance trading infrastructure, with Solana combining low fees with a large base of retail traders. According to Brian Smith of the Jito Foundation, 'The most important ingredient for any exchange platform, but especially perps, is retail organic flow.' Smith also argues that Ethereum faces an additional challenge: fragmentation. 'You need to be able to trade everything in a single spot,' he said.
Ethereum's scaling strategy relied on layer-2 networks to handle high-volume activity, reducing costs and improving performance but dispersing users and liquidity across multiple ecosystems. Some Ethereum proponents argue that the focus on execution misses the network's longer-term role in the on-chain financial stack. Matthieu Saint Olive, a staff product manager at MetaMask, argues that Ethereum's role is the settlement and collateral base where the deepest liquidity, the widest range of assets, the stablecoins, and the most mature DeFi primitives live. As institutions begin paying closer attention to on-chain derivatives, the conversation is shifting from whether decentralized perpetuals can work to whether they can compete with traditional infrastructure.
'It comes down to execution, custody, and predictability, not ideology,' Saint Olive said. Institutions still need deeper liquidity, more efficient capital usage, and better execution before deploying significant trading volume on-chain. The next milestone is to be able to do things on-chain that can't be done, or can't be done as cheaply, in traditional markets. While much of today's decentralized perpetual volume revolves around crypto assets, market participants see the infrastructure supporting perps as the foundation for broader capital markets.
Perpetuals are already demonstrating what programmable markets can become. Whether Ethereum's division of labor persists will depend on how quickly it can solve challenges such as fragmented liquidity, better interoperability, and a smoother user experience.