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 rapid growth of perpetual futures, also known as 'perps', has largely taken place on other blockchain platforms like Hyperliquid and Solana. This is because perpetuals require extremely fast, low-cost, and high-frequency trading, which Ethereum's base layer was not designed to handle. As a result, Ethereum has fallen behind in terms of hosting perpetual exchanges, with many traders now opting for layer-2 networks like Arbitrum and Base.
The distinction between Ethereum's role and that of other platforms has become increasingly important as decentralized perpetual exchanges mature and attract institutional attention. 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 high demands of perpetuals, including thousands of rapid-fire updates and liquidations, have made it challenging for Ethereum to keep up. Brian Smith of the Jito Foundation notes that 'Perps on-chain are really hard... If your perps platform goes down, that's existential risk.' Ethereum's security-first architecture has made it an ideal settlement layer, but its block times and gas costs have made it an expensive place to run latency-sensitive trading applications.
The launch of GMX on Arbitrum in 2021 helped establish a template for other perps builders to follow, with Warner noting that 'Ethereum mainnet fees were prohibitively expensive, which naturally attracted 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. However, some argue that technical performance is only part of the story, with Chris Boulous of Dromos Labs noting 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.
The rise of Solana and Hyperliquid has also been driven by their ability to provide low fees and a large base of retail traders, with Smith arguing that 'the most important ingredient for any exchange platform, but especially perps, is retail organic flow.' Ethereum faces an additional challenge in terms of fragmentation, with users and liquidity dispersed across multiple ecosystems, making it less seamless than single-chain ecosystems like Solana. However, some Ethereum proponents argue that the focus on execution misses the network's longer-term role in the on-chain financial stack, with Matthieu Saint Olive noting 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 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. Warner argues that institutions still need deeper liquidity, more efficient capital usage, and better execution before deploying significant trading volume on-chain. The next milestone for decentralized perpetuals will be the ability 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 increasingly see the infrastructure supporting perps as the foundation for broader capital markets. Saint Olive believes that perpetuals are already demonstrating what programmable markets can become, and that 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, including fragmented liquidity across layer 2s, better interoperability between networks, and a smoother user experience.