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 flourished on other platforms. Traders are more likely to find on-chain perpetuals on Hyperliquid or Solana, as these chains offer the fast, low-cost, and high-frequency trading required for perps. 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.' Ethereum's security-first architecture has made it an ideal settlement layer, but its block times and gas costs have historically made it an expensive place to run latency-sensitive trading applications.
The launch of decentralized perps exchange GMX on Arbitrum in 2021 established a template for others 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. Chris Boulous of Dromos Labs argues that technical performance is only part of the story, stating that 'trading is effectively a network-effects business' where '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 in popularity, with Smith of Jito noting that 'the most important ingredient for any exchange platform, but especially perps, is retail organic flow,' and that 'Solana is the king of retail trading activity.' However, Ethereum's layer-2 ecosystem has become a compromise, preserving Ethereum's security while dramatically improving trading performance.
Networks like Arbitrum and Base have reduced block times and become increasingly attractive trading destinations. 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.
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 of Offchain Labs notes that institutions still need deeper liquidity, more efficient capital usage, and better execution before deploying significant trading volume on-chain. The next milestone, according to Boulous, 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 increasingly see the infrastructure supporting perps as the foundation for broader capital markets.