For years, Ethereum has been synonymous with decentralized finance. He pioneered on-chain financial tools such as lending protocols and tokenized assets, which underpin much of the crypto economy today. But one of crypto’s fastest-growing sectors, perpetual futures, or “perps,” has largely flourished elsewhere.
Ask traders where onchain perpetuals live today, and the answer is more likely to be Hyperliquid or Solana than Ethereum. Indeed, perpetuals require something that Ethereum’s base layer was never designed to be optimized for: extremely fast, low-cost, high-frequency trading.
“Perps require frequent trading, fast execution and significant liquidity,” said AJ Warner, chief strategy officer at Offchain Labs, the lead development company behind Layer 2 Arbitrum. “This makes it a natural use case for the Arbitrum platform.”
The distinction has become increasingly important as decentralized perpetual exchanges evolve from crypto-native products to markets attracting institutional attention.
Why Ethereum L1 fell behind schedule
Perpetuals are one of the most demanding applications in cryptography. Their exchanges require thousands of rapid updates, liquidations, funding payments, and order executions, all without interruption.
“Chain criminals are really tough,” said Brian Smith of the Jito Foundation. “It’s not just the average performance that matters, it’s also the 99.99% success rate. If your people platform goes down, it’s an existential risk.”
Ethereum’s security-focused architecture made it an ideal settlement layer, but historically its block times and gas costs made it an expensive place to run latency-sensitive trading applications.
When decentralized perps exchange GMX launched on Arbitrum in 2021, it helped establish a model that many others would follow. “Ethereum mainnet fees were prohibitive, which naturally attracted builders to Arbitrum,” Warner said. Offchain Labs then built on this momentum, actively prioritizing perpetuals as a strategic category.
“By prioritizing the vertical, we were able to attract a concentration of builders and capital to the ecosystem.” Today, much of Ethereum’s perpetual trading activity takes place not on the Ethereum mainnet, but on layer 2 networks like Arbitrum and, increasingly, Base.
Ethereum’s Layer 2 ecosystem has become something of a compromise: preserving Ethereum’s security while significantly improving business performance. Networks like Arbitrum and Base have reduced lock-up times while becoming an increasingly attractive trading destination due to their growing user base and liquidity.
Chris Boulous of Dromos Labs, the lead development company behind Aerodrome, a decentralized exchange that lives on the Base network, argued that technical performance is only part of the story.
“Trade is indeed a network effects business,” he said. “You have to build where the liquidity and users currently exist.” This dynamic is self-reinforcing: protocols are launched where traders already are, liquidity providers follow traders, and then new applications are built around existing liquidity. This is one of the reasons why Boulous sees Aérodrome as complementary to perpetual exchanges rather than as competitive.
“You can sort of think of criminals as customers of spot exchanges,” Boulous said. Spot exchanges provide pricing, liquidity, and hedging opportunities that perpetual markets depend on. “Spot and criminals are two sides of the same liquidity coin.”
Why Solana and Hyperliquid jumped
Yet Ethereum’s Layer 2 ecosystem isn’t the only place where developers can build high-performance business infrastructure. Hyperliquid has built an app-specific channel optimized almost entirely for perpetual trading. Solana, meanwhile, has combined low fees with a large base of retail traders already actively trading memecoins and other speculative assets.
According to Jito’s Smith, that user base matters as much as the technology. “The most important ingredient for any trading platform, but especially for criminals, is the organic retail flow,” he said. “Solana is the king of retail.”
Smith also says that Ethereum faces an additional challenge: fragmentation. “You need to be able to trade everything in one place,” he said. “What Ethereum suffers from is a level of fragmentation.”
Ethereum’s scaling strategy relied heavily on layer 2 networks like Arbitrum and Base to handle high volume of activity. While this approach significantly reduced costs and improved performance, it also dispersed users and liquidity across multiple ecosystems. Traders often have to link assets across networks, making the experience less seamless than on single-chain ecosystems such as Solana. Earlier this year, Ethereum co-founder Vitalik Buterin acknowledged that the original vision of the Layer 2 roadmap “no longer makes sense” as Layer 2s have decentralized more slowly than expected and Ethereum’s base layer itself has become more scalable.
However, not everyone sees this fragmentation as a fatal flaw. Some Ethereum supporters say the focus on execution ignores the network’s long-term role in the on-chain financial stack. Matthieu Saint Olive, product manager at MetaMask, says the framing itself doesn’t take into account what’s happening. “I would gently push back against the assumption that this is primarily a competition,” he told CoinDesk.
Purpose-built trading chains may ultimately win in terms of execution speed, but they still need a place to source collateral, liquidity, stablecoins, and settlement. “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 run directly on Ethereum Layer 2 or remain tightly connected to the Ethereum ecosystem for collateral, settlement, and developer tools. “L2s allow Ethereum to adapt to use cases like active trading without giving up what makes the base layer valuable,” Saint Olive said.
The institutional question
As institutions begin to pay more attention to on-chain derivatives, the discussion shifts from whether decentralized perpetuals can work to whether they can compete with traditional infrastructure. “It’s about execution, detention and predictability, not ideology,” Saint Olive said.
According to Offchain Labs’ Warner, institutions still need greater liquidity, more efficient use of capital, and better execution before deploying significant trading volume on-chain. “Capital is still fragmented across locations,” Warner said. “Institutions will want greater access to credit, cross-margins and the ability to trade between different locations without leaving large amounts of capital unused.”
For Boulous, the next step is simple: “You need to be able to do things on-chain that you can’t do, or at a lower cost, in traditional markets. »
While much of today’s decentralized perpetual volume still revolves around crypto assets, market participants increasingly view the infrastructure that supports criminals as the basis of broader capital markets. Saint Olive believes that perpetuals already demonstrate what programmable markets can become.
“Perps are the leading indicator, the first place where you can see traditional financial activity really migrating down the chain,” Saint Olive said.
This may also explain why Ethereum’s role in the market is evolving rather than diminishing.
Solana and purpose-built chains like Hyperliquid have established themselves as the places where traders execute trades at high speed. Ethereum, meanwhile, is increasingly positioning itself as the settlement and collateralization layer that supports these markets through its layer 2 ecosystem and broader DeFi infrastructure.
Whether this division of labor persists will depend on how quickly Ethereum can resolve some of the challenges pointed out by its critics: fragmented liquidity between Layer 2s, better interoperability between networks, and a smoother user experience. If it’s possible, proponents say Ethereum doesn’t necessarily need to become the fastest place to trade perpetuals. It simply must remain the deepest and most reliable place to settle them.
Read more: Perpetual Futures Could Become Crypto’s Next ETF Moment
