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 are more likely to find on-chain perpetuals on Hyperliquid or Solana than on Ethereum, due to the latter's base layer not being optimized for extremely fast, low-cost, and high-frequency trading.
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 made it expensive for latency-sensitive trading applications. When GMX launched on Arbitrum in 2021, it established a template for others to follow, and Offchain Labs prioritized perpetuals as a strategic category. Today, much of Ethereum's perpetual trading activity lives 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 also surged as destinations for high-performance trading infrastructure, with Solana combining low fees with a large base of retail traders and Hyperliquid building an application-specific chain optimized for perpetual trading.
However, Ethereum's layer-2 ecosystem has become a compromise, preserving Ethereum's security while improving trading performance. Networks like Arbitrum and Base have reduced block times and become attractive trading destinations due to their growing user base and liquidity.
As institutions begin paying 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 revolves around crypto assets, market participants see the infrastructure supporting perps as the foundation for broader capital markets.
Ethereum's role in the market is evolving, with Solana and purpose-built chains like Hyperliquid establishing themselves as venues for high-speed transactions, and Ethereum positioning itself as the settlement and collateral layer that underpins those markets through its layer-2 ecosystem and broader DeFi infrastructure.