For years, Ethereum has been at the forefront 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 currently traded, traders are more likely to mention Hyperliquid or Solana 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 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 from crypto-native products into markets attracting institutional attention. 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. As a result, many perpetuals builders have turned to 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, and that 'trading is effectively a network-effects business.' You have to build where the liquidity and users currently exist, which has become self-reinforcing.
Protocols launch where traders already are, liquidity providers follow the traders, and then new applications build around existing liquidity. Solana and Hyperliquid have also established themselves as major players in the perpetual futures market, with Solana combining low fees with a large base of retail traders and Hyperliquid building an application-specific chain optimized for perpetual trading.
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, believes 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. 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 you can't do, or can't do as cheaply, in traditional markets. While much of today's decentralized perpetual volume still revolves around crypto assets, market participants increasingly see the infrastructure supporting perps as the foundation for broader capital markets. Perpetuals are already demonstrating what programmable markets can become, and Ethereum's role in the market is evolving rather than diminishing. 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.