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 is because perpetuals demand something Ethereum’s base layer was never designed to optimize for: extremely fast, low-cost, high-frequency trading.
“Perps require frequent transactions, fast execution, and deep liquidity,” said AJ Warner, chief strategy officer at Offchain Labs, the main developer firm behind the 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 attracting institutional attention.
Why Ethereum L1 fell behind
Perpetuals are one of the most demanding applications in crypto. Their exchanges require thousands of rapid-fire updates, liquidations, funding payments, and order executions, all without interruption.
“Perps onchain are really hard,” 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, that’s existential risk.”
Ethereum’s security-first 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 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 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 lives 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 dramatically improving trading performance. Networks like Arbitrum and Base have reduced block times while also becoming an increasingly attractive trading destination because of their growing user base and liquidity.
Chris Boulous of Dromos Labs, the main developer firm behind Aerodrome, a decentralized exchange that lives on the Base network, argued that technical performance is only part of the story.
“Trading is effectively a network-effects business,” he said. “You have to build where the liquidity and users currently exist.” That dynamic has become self-reinforcing: protocols launch where traders already are, liquidity providers follow the traders, and then new applications build around existing liquidity. It’s one reason Boulous sees Aerodrome as complementary to perpetual exchanges rather than competitive with them.
“You can kind of think of perps as a customer of spot exchanges,” Boulous said. Spot exchanges provide pricing, liquidity and hedging opportunities that perpetual markets depend on. “Spot and perps are two sides of the same liquidity coin.”
Why Solana and Hyperliquid surged
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 optimized almost entirely for perpetual trading. Solana, meanwhile, combined low fees with a large base of retail traders already actively trading memecoins and other speculative assets.
According to Smith of Jito, 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 trading activity.”
Smith also argues Ethereum faces an additional challenge: fragmentation. “You need to be able to trade everything in a single spot,” he said. “What Ethereum is suffering from is a level of fragmentation.”
Ethereum’s scaling strategy largely relied on layer-2 networks like Arbitrum and Base to handle high-volume activity. While that approach dramatically reduced costs and improved performance, it also dispersed users and liquidity across multiple ecosystems. Traders often need to bridge assets between 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 layer-2 roadmap vision “no longer makes sense” as layer 2s have decentralized more slowly than expected and Ethereum’s base layer has itself become more scalable.
Not everyone sees that fragmentation as a fatal flaw, however. Some Ethereum proponents argue the focus on execution misses the network’s longer-term role in the onchain financial stack. Matthieu Saint Olive, a staff product manager at MetaMask, argues the framing itself misses what’s happening. “I’d push back gently 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 somewhere to source collateral, liquidity, stablecoins, and settlement. “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.”
Several leading perpetual trading platforms either operate directly on Ethereum layer 2s or remain closely connected to Ethereum’s ecosystem for collateral, settlement, and developer tooling. “L2s are how Ethereum scales into use cases like active trading without giving up the thing that makes the base layer valuable,” Saint Olive said.
The institutional question
As institutions begin paying closer 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, Warner of Offchain Labs argued, still need deeper liquidity, more efficient capital usage, and better execution before deploying significant trading volume onchain. “Capital is still fragmented across venues,” Warner said. “Institutions will want better access to credit, cross-margining, and the ability to trade across venues without leaving large amounts of capital idle.”
For Boulous, the next milestone is straightforward: “You have to be able to do things onchain 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 crypto assets, market participants increasingly see the infrastructure supporting perps as the foundation for broader capital markets. Saint Olive believes perpetuals are already demonstrating what programmable markets can become.
“Perps are the leading indicator, the first place you can watch traditional financial activity genuinely migrate onchain,” Saint Olive said.
That 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 execute high-speed transactions. Ethereum, meanwhile, is increasingly positioning itself as the settlement and collateral layer that underpins those markets through its layer-2 ecosystem and broader DeFi infrastructure.
Whether that division of labor persists will depend on how quickly Ethereum can solve some of the challenges its critics point to: fragmented liquidity across layer 2s, 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 perpetuals. It simply needs to remain the deepest and most trusted place to settle them.
Read more: Perpetual futures could become crypto’s next ETF moment
