For several years, Ethereum has been closely associated with the development of 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 primarily flourished on other platforms.
When asked where on-chain perpetuals are predominantly traded, the response is more likely to be 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 have historically made it an expensive platform for running 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 takes place 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, stating that 'trading is effectively a network-effects business. You have to build where the liquidity and users currently exist.' This dynamic has become self-reinforcing, with protocols launching where traders already are, liquidity providers following the traders, and new applications building around existing liquidity. Boulous sees Aerodrome as complementary to perpetual exchanges rather than competitive with them, believing that 'you can kind of think of perps as a customer of spot exchanges.' Spot exchanges provide pricing, liquidity, and hedging opportunities that perpetual markets depend on.
'Spot and perps are two sides of the same liquidity coin,' Boulous said. Solana and Hyperliquid have also surged as destinations for high-performance trading infrastructure. According to Smith of Jito, the user base matters as much as the technology, stating that 'the most important ingredient for any exchange platform, but especially perps, is retail organic flow.
Solana is the king of retail trading activity.' Smith also argues that Ethereum faces an additional challenge: fragmentation. 'You need to be able to trade everything in a single spot,' he said. 'What Ethereum is suffering from is a level of fragmentation.' Ethereum's scaling strategy has relied on layer-2 networks to handle high-volume activity, but this approach has dispersed users and liquidity across multiple ecosystems.
Traders often need to bridge assets between networks, making the experience less seamless than on single-chain ecosystems like Solana. Earlier this year, Ethereum co-founder Vitalik Buterin acknowledged that the original layer-2 roadmap vision 'no longer makes sense' as layer 2s have decentralized more slowly than expected and Ethereum's base layer has become more scalable. Not everyone sees fragmentation as a fatal flaw, however. 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.' Several leading perpetual trading platforms either operate directly on Ethereum layer 2s or remain closely connected to Ethereum's ecosystem for collateral, settlement, and developer tooling. 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. Institutions still need deeper liquidity, more efficient capital usage, and better execution before deploying significant trading volume on-chain.
For Boulous, the next milestone is straightforward: 'You have to be able to do things on-chain that you can't do, or can't do 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. Saint Olive believes perpetuals are already demonstrating what programmable markets can become. 'Perps are the leading indicator, the first place you can watch traditional financial activity genuinely migrate on-chain,' Saint Olive said.
That may also explain why Ethereum's role in the market is evolving rather than diminishing. Solana and purpose-built chains like Hyperliquid have established themselves as venues for high-speed transactions, while Ethereum is increasingly positioning itself as the settlement and collateral layer that underpins those markets through its layer-2 ecosystem and broader DeFi infrastructure. Whether that division of labor persists will depend on how quickly Ethereum can solve some of the challenges its critics point to: fragmented liquidity across layer 2s, better interoperability between networks, and a smoother user experience. If it can, proponents argue Ethereum doesn't necessarily need to become the fastest place to trade perpetuals; it simply needs to remain the deepest and most trusted place to settle them.