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 rapidly growing sector of perpetual futures, or 'perps,' has largely thrived on other platforms. When asked where on-chain perpetuals are currently based, traders are more likely to mention Hyperliquid or Solana rather than Ethereum, primarily due to Ethereum's base layer not being optimized for the extremely fast, low-cost, and high-frequency trading that perpetuals demand.
According to AJ Warner, chief strategy officer at Offchain Labs, the main developer firm behind the layer-2 Arbitrum, '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 has made it an ideal settlement layer, but its block times and gas costs have historically made it expensive for running latency-sensitive trading applications. The launch of GMX on Arbitrum in 2021 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 is 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, with trading being a network-effects business that requires building where liquidity and users exist. This dynamic has become self-reinforcing, with protocols launching where traders are, liquidity providers following, and new applications building around existing liquidity.
Boulous sees Aerodrome as complementary to perpetual exchanges rather than competitive, with spot exchanges providing pricing, liquidity, and hedging opportunities that perpetual markets depend on. Solana and Hyperliquid have surged due to their ability to build high-performance trading infrastructure, with Solana's large base of retail traders being a significant factor.
According to Brian Smith of Jito, 'The most important ingredient for any exchange platform, but especially perps, is retail organic flow,' with Solana being the king of retail trading activity. However, Ethereum faces the challenge of fragmentation, with its scaling strategy relying on layer-2 networks that have dispersed users and liquidity across multiple ecosystems. Not everyone sees this fragmentation as a fatal flaw, with some arguing that the focus on execution misses Ethereum's longer-term role in the on-chain financial stack. Matthieu Saint Olive, a staff product manager at MetaMask, argues that Ethereum's role is the settlement and collateral base where the deepest liquidity, widest range of assets, stablecoins, and most mature DeFi primitives live.
Several leading perpetual trading platforms operate directly on Ethereum layer 2s or remain closely connected to Ethereum's ecosystem for collateral, settlement, and developer tooling. 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 being 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.
Perpetuals are already demonstrating what programmable markets can become, 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.