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 often point to Hyperliquid or Solana as the primary venues for on-chain perpetuals, rather than Ethereum, due to the demanding requirements of perps, including fast execution, low costs, 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.' 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.
The launch of GMX on Arbitrum in 2021 established a template for other perps builders, who were attracted to Arbitrum's lower fees. 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, and '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 venues for high-performance trading infrastructure, with Solana's large base of retail traders and low fees making it an attractive option.
However, Ethereum's layer-2 ecosystem has become a compromise, preserving Ethereum's security while dramatically improving trading performance. 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 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. 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 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.