For years, Ethereum has been at the forefront of decentralized finance, pioneering on-chain financial tools like lending protocols and tokenized assets. However, the rapidly growing sector of perpetual futures, or 'perps,' has largely thrived on other platforms. Traders often associate on-chain perpetuals with Hyperliquid or Solana, rather than Ethereum, due to the latter's base layer not being optimized for extremely fast and low-cost transactions. According to AJ Warner, chief strategy officer at Offchain Labs, 'Perps require 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.
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 latency-sensitive trading applications. When decentralized perps exchange GMX launched on Arbitrum in 2021, it established a template that many others would follow, with Ethereum mainnet fees being prohibitively expensive and attracting perps builders to Arbitrum. 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 argued that technical performance is only part of the story, saying '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. Solana and Hyperliquid have surged in popularity due to their ability to build 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. 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 like Arbitrum and Base to handle high-volume activity, reducing costs and improving performance but also dispersing users and liquidity across multiple ecosystems. Not everyone sees this fragmentation as a fatal flaw, with some Ethereum proponents arguing 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 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.
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 still 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, with Ethereum's role 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.