The rise of perpetual futures in the crypto space has led to a shift in Ethereum's role, with the network increasingly focusing on supporting layer-2 networks and providing a secure settlement layer. For years, Ethereum was synonymous with decentralized finance, pioneering on-chain financial tools like lending protocols and tokenized assets.
However, the demand for extremely fast and low-cost transactions has led to the emergence of other chains like Hyperliquid and Solana. According to AJ Warner, chief strategy officer at Offchain Labs, perpetuals require frequent transactions, fast execution, and deep liquidity, making them a natural use case for layer-2 platforms like Arbitrum.
The distinction between Ethereum's layer-1 and layer-2 networks has become increasingly important as decentralized perpetual exchanges mature and attract institutional attention. Ethereum's security-first architecture made it an ideal settlement layer, but its block times and gas costs made it expensive for latency-sensitive trading applications. The launch of GMX on Arbitrum in 2021 established a template for other perpetual exchanges to follow, with many builders attracted to the lower fees and faster transaction times.
Today, much of Ethereum's perpetual trading activity takes place on layer-2 networks like Arbitrum and Base, which have reduced block times and become attractive trading destinations due to their growing user base and liquidity. Chris Boulous of Dromos Labs argues that technical performance is only part of the story, and that trading is effectively a network-effects business, where protocols launch where traders already are, and liquidity providers follow.
Solana and Hyperliquid have also gained traction, with Solana's large base of retail traders and low fees making it an attractive destination for perpetual trading. However, Ethereum's layer-2 ecosystem has become a compromise, preserving Ethereum's security while improving trading performance.
The focus on execution has led to a fragmentation of users and liquidity across multiple ecosystems, with traders needing to bridge assets between networks. Despite this, some Ethereum proponents argue that the network's role is evolving, with a focus on providing a settlement and collateral layer that underpins the broader DeFi ecosystem.
As institutions begin to pay closer attention to on-chain derivatives, the conversation is shifting from whether decentralized perpetuals can work to whether they can compete with traditional infrastructure. The next milestone will be to enable institutions to trade on-chain with better execution, custody, and predictability.
Ultimately, the division of labor between Ethereum and other chains will depend on how quickly Ethereum can solve its challenges and provide a smoother user experience.