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, 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 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 expensive for running latency-sensitive trading applications.
When 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 lives on layer-2 networks like Arbitrum and Base, which have become a compromise, preserving Ethereum's security while improving trading performance.
Chris Boulous of Dromos Labs argued that technical performance is only part of the story, and 'trading is effectively a network-effects business,' where you have to build where liquidity and users exist. That dynamic has become self-reinforcing, with protocols launching where traders are, liquidity providers following, and new applications building around existing liquidity.
Solana and Hyperliquid have surged as they offer low fees and a large base of retail traders, with Smith of Jito stating that 'retail organic flow' is crucial for any exchange platform. Ethereum faces the challenge of fragmentation, with users and liquidity dispersed across multiple ecosystems, making the experience less seamless.
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 stating 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 attention to on-chain derivatives, the conversation is shifting from whether decentralized perpetuals can work to whether they can compete with traditional infrastructure, with the need for deeper liquidity, more efficient capital usage, and better execution. 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, with Saint Olive believing that perpetuals are already demonstrating what programmable markets can become.