For years, Ethereum has been synonymous with decentralized finance. It pioneered onchain financial tools like lending protocols and tokenized assets, which today underpin much of the crypto-economy. 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. That’s because perpetuals require something Ethereum’s base layer was never designed to optimize for: extremely fast, low-cost, and high-frequency trading.
“Perps require frequent transactions, fast execution and deep liquidity,” said AJ Warner, Chief Strategy Officer at Offchain Labs, the lead developer behind Layer-2 Arbitrum. “That makes them a natural use case for the Arbitrum platform.”
The distinction has become increasingly important as decentralized perpetual exchanges mature from crypto-native products into markets that attract institutional attention.
Why Ethereum L1 fell behind
Perpetuals are one of the most demanding applications in crypto. Their exchanges require thousands of quick updates, liquidations, funding payments and order executions, all without interruption.
“Perps onchain are really tough,” said Brian Smith of the Jito Foundation. “It’s not just the average performance that matters, it’s the 99.99% success rate. If your perps platform goes down, it’s an existential risk.”
At first, Ethereum’s architecture certainly 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 template that many others would follow. “Ethereum mainnet fees were prohibitively expensive, which naturally attracted perps builders to Arbitrum,” Warner said. Offchain Labs then leaned into that momentum, actively prioritizing perpetuities 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 lives not on the Ethereum network, 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 dramatically improving trading performance. Networks like Arbitrum and Base have reduced block times while also becoming an increasingly attractive trading destination due to their growing user base and liquidity.
Chris Boulous of Dromos Labs, the lead developer company behind Aerodrome, a decentralized exchange that lives on the Base network, argued that technical performance is only part of the story.
“Trade is actually a business of network effects,” he said. “You have to build where the liquidity and the users are at the moment.” This dynamic has become self-reinforcing: protocols launch where traders already are, liquidity providers follow traders, and then new applications build around existing liquidity. That’s one of the reasons why Boulous sees Aerodrome as a complement to Eternal Exchanges rather than competing with them.
“You can kind of think of perps as a customer of spot exchanges,” Boulous said. Spot exchanges provide opportunities for pricing, liquidity and hedging that perpetual markets depend on. “Spot and perps are two sides of the same liquidity coin.”
Why Solana and Hyperliquid rose
Still, Ethereum’s layer-2 ecosystem isn’t the only place where developers can build high-performance trading infrastructure. Hyperliquid built an application-specific chain almost entirely optimized for perpetual trading. Solana, meanwhile, combined low fees with a large base of retailers 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 exchange platform, but especially perps, is retail organic flow,” he said. “Solana is the king of retail activity.”
Smith also claims that Ethereum faces an additional challenge: fragmentation. “You have to be able to shop 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 activity. While this approach dramatically reduced costs and improved performance, it also spread users and liquidity across multiple ecosystems. Merchants often need to bridge assets between networks, making the experience less seamless than on single-chain ecosystems like Solana. Earlier this year, Ethereum co-founder Vitalik Buterin acknowledged that the original layer-2 roadmap vision “no longer makes sense” as the layer 2s have been decentralized more slowly than expected and Ethereum’s base layer itself has become more scalable.
However, not everyone sees that fragmentation as a fatal flaw. Some Ethereum supporters argue that the focus on execution misses the network’s long-term role in the on-chain financial stack. Matthieu Saint Olive, a staff product manager at MetaMask, argues that framing itself misses what’s going on. “I would gently push back on the premise that it’s a competition in the first place,” he told CoinDesk.
Purpose-built trading chains may ultimately win on execution speed, but they still require a place to source security, liquidity, stablecoins and settlement. “Ethereum’s role is the settlement and security foundation where the deepest liquidity, the widest variety of assets, the stablecoins and the most mature DeFi primitives live.”
Several leading perpetual trading platforms either operate directly on Ethereum layer 2s or remain closely connected to Ethereum’s ecosystem of collateral, settlement and developer tools. “L2s are how Ethereum scales into 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 onchain derivatives, the conversation is shifting from whether decentralized perpetuals can work to whether they can compete with traditional infrastructure. “It comes down to execution, custody and predictability, not ideology,” Saint Olive said.
Institutions, argued Warner of Offchain Labs, still need deeper liquidity, more efficient capital deployment and better execution before deploying significant trading volume on-chain. “Capital is still fragmented across venues,” Warner said. “The institutions will have better access to credit, cross-margining and the ability to trade across venues without leaving large amounts of capital unused.”
For Boulous, the next milestone is straightforward: “You have to be able to do things on the chain that you can’t do, or can’t do as cheaply, in traditional markets.”
While much of today’s decentralized perpetual volume still revolves around cryptoassets, market participants increasingly see the infrastructure that supports perps as the foundation of broader capital markets. Saint Olive believes that eternities are already demonstrating what programmable markets can become.
“Perps is the leading indicator, the first place you can see traditional financial activity really migrating on the chain,” Saint Olive said.
It 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 venues where traders conduct high-speed transactions. Ethereum, meanwhile, is increasingly positioning itself as the settlement and security layer supporting these markets through its layer-2 ecosystem and broader DeFi infrastructure.
Whether that division of labor continues will depend on how quickly Ethereum can address some of the challenges its critics point to: fragmented liquidity across Layer 2, better interoperability between networks, and a smoother user experience. If it can, proponents argue, Ethereum doesn’t necessarily need to become the fastest place to trade forever. It must simply remain the deepest and most trusted place to settle them.
Read more: Perpetual futures could be crypto’s next ETF moment
