Perpetual futures have become one of crypto’s most traded products — and yet, when you ask traders where the real action happens onchain, Ethereum perpetual futures barely enter the conversation. Hyperliquid. Solana. Those are the names that come up first. That’s a striking reality for a network that essentially built decentralized finance from the ground up.
Summary
Key takeaways
- Ethereum’s base layer was never optimized for the fast, low-cost, high-frequency execution that perpetual futures demand.
- Layer-2 networks like Arbitrum and Base now host the majority of Ethereum-based perps activity, with GMX on Arbitrum serving as the early template after its 2021 launch.
- Solana and Hyperliquid have emerged as serious competitors, drawing traders with lower fees and strong retail user bases.
- Liquidity fragmentation across Ethereum’s layer-2 ecosystem remains a significant structural challenge, acknowledged even by co-founder Vitalik Buterin.
- Ethereum is increasingly positioning itself as the settlement and collateral layer underpinning perps markets, rather than their primary execution venue.
Ethereum’s Pioneering Role — and Its Built-In Limits
Ethereum changed finance. Lending protocols, tokenized assets, decentralized exchanges — all of it was built on Ethereum’s foundation. But perpetual futures, one of crypto’s highest-volume and fastest-growing product categories, were never what the network was designed to handle at its base layer.
The reason is structural. Perpetuals require something fundamentally different from the average DeFi application: thousands of rapid-fire order executions, liquidations, funding rate updates, and real-time price feeds, all running without interruption. Even a brief outage carries serious consequences.
“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 a trusted settlement layer, but its block times and gas costs historically made it an expensive, slow environment for latency-sensitive trading. As perpetual exchanges scaled up, building directly on Ethereum mainnet simply wasn’t viable.
How Layer-2s Became the Real Home of Ethereum Perps
The migration off mainnet started early. When GMX launched on Arbitrum in 2021, it established a blueprint that shaped the entire sector. Arbitrum offered dramatically lower fees while preserving Ethereum’s underlying security — exactly the tradeoff perps builders needed.
“Ethereum mainnet fees were prohibitively expensive, which naturally attracted perps builders to Arbitrum,” said AJ Warner, Chief Strategy Officer at Offchain Labs, the main developer firm behind Arbitrum. Offchain Labs leaned into that momentum deliberately, prioritizing perpetuals as a strategic vertical. “By prioritizing the vertical, we were able to attract a concentration of builders and capital to the ecosystem,” Warner added.
Today, the majority of Ethereum-based perpetual futures trading runs on layer-2 scaling networks — primarily Arbitrum and, increasingly, Base. These networks have reduced block times and built growing user bases, making them attractive destinations not just for performance reasons but also because of the liquidity pools that have accumulated there over time.
Chris Boulous, main developer at Dromos Labs behind Aerodrome — a decentralized exchange on Base — frames this as a network-effects story more than a pure technology story. “Trading is effectively a network-effects business,” he said. “You have to build where the liquidity and users currently exist.” Protocols launch where traders already are. Liquidity providers follow. New applications build around existing liquidity. The cycle is self-reinforcing.
Boulous also sees spot and perpetual markets as interdependent rather than competing. “You can kind of think of perps as a customer of spot exchanges,” he said. “Spot and perps are two sides of the same liquidity coin.”
Solana and Hyperliquid: A Different Kind of Competition
Ethereum’s layer-2 ecosystem isn’t the only high-performance option available to perps builders. Hyperliquid built an application-specific chain engineered almost exclusively for perpetual trading. Solana took a different path — combining low fees with a massive existing base of retail traders already active in memecoins and speculative assets.
According to Smith of the Jito Foundation, that retail flow is the decisive advantage. “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.”
The competitive pressure from these chains is real. Ask active traders today where onchain perpetuals live, and the answer is far more likely to be Hyperliquid or Solana than any Ethereum layer-2. That’s a gap that goes beyond technology — it reflects where users and liquidity have actually settled.
The Fragmentation Problem Ethereum Can’t Ignore
Ethereum’s layer-2 strategy solved one problem — execution cost and speed — while creating another. Dispersing activity across multiple networks has fragmented liquidity in ways that complicate the trading experience significantly.
“What Ethereum is suffering from is a level of fragmentation,” Smith said. “You need to be able to trade everything in a single spot.” On Ethereum, traders frequently need to bridge assets across networks, a process that adds friction, delays, and uncertainty absent from single-chain environments like Solana.
The issue reached a point where Vitalik Buterin, Ethereum’s co-founder, acknowledged earlier this year that the original layer-2 roadmap vision “no longer makes sense,” citing slower-than-expected decentralization of layer-2 networks and Ethereum’s base layer becoming more scalable itself, according to reporting by CoinDesk.
This is arguably the sharpest structural challenge Ethereum faces in perpetual markets. Execution fragmented across Arbitrum, Base, and other networks means that liquidity is also fragmented — and liquidity depth is everything in a perps market. A platform that forces traders to manage assets across multiple chains will lose users to one that doesn’t.
Ethereum’s Evolving Role: Settlement and Collateral, Not Execution
Some builders argue that framing Ethereum as “losing” to Solana or Hyperliquid misunderstands what Ethereum’s role actually is — and what it’s becoming.
Matthieu Saint Olive, Staff Product Manager at MetaMask, pushed back on the competitive framing directly. “I’d push back gently on the premise that it’s a competition in the first place,” he told CoinDesk. His argument is that purpose-built trading chains may win on raw execution speed, but they still need somewhere to source collateral, liquidity, stablecoins, and settlement infrastructure. That somewhere, he argues, is Ethereum.
“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,” Saint Olive said. “L2s are how Ethereum scales into use cases like active trading without giving up the thing that makes the base layer valuable.”
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 — a signal that the network’s gravitational pull on the broader infrastructure hasn’t disappeared, even as execution has migrated elsewhere.
Institutional Attention Is Growing — But So Are the Demands
Decentralized perpetual exchanges are no longer purely retail-facing products. Institutions are paying attention, and the questions they’re asking are more demanding than those of retail traders.
“It comes down to execution, custody, and predictability, not ideology,” Saint Olive said. That framing matters: institutional capital doesn’t move based on ideological alignment with decentralization. It moves based on whether the infrastructure can be trusted at scale.
Warner of Offchain Labs identified the specific gaps that still need closing. “Capital is still fragmented across venues,” he said. “Institutions will want better access to credit, cross-margining, and the ability to trade across venues without leaving large amounts of capital idle.” These are solvable problems in traditional finance — replicated onchain, they require deeper liquidity, better interoperability, and more mature tooling than currently exists.
Boulous set a clear benchmark for when the market matures: “You have to be able to do things onchain that you can’t do, or can’t do as cheaply, in traditional markets.” That threshold hasn’t been fully reached yet, but the infrastructure being built today is explicitly aimed at crossing it.
Saint Olive sees perpetuals as the leading edge of a broader migration. “Perps are the leading indicator, the first place you can watch traditional financial activity genuinely migrate onchain,” he said. If that’s true, the infrastructure decisions being made now — which chains host execution, which provides settlement, how liquidity flows between them — will define what decentralized capital markets look like at institutional scale.
Ethereum doesn’t need to win the execution race to remain central to that future. But it does need to solve fragmentation, improve interoperability across its layer-2 ecosystem, and deliver a user experience that doesn’t force traders to navigate a maze of bridges and disconnected liquidity pools. Whether it can do that fast enough — before Solana and Hyperliquid deepen their moats — is the real question hanging over the network’s role in the next phase of crypto derivatives.
FAQ
Why does Ethereum’s base layer struggle with perpetual futures trading?
Ethereum’s base layer has high block times and gas costs, making it expensive and slow for the latency-sensitive, high-frequency execution that perpetual futures trading demands. Perps require constant order updates, liquidations, and funding payments — workloads the base layer was never designed to handle efficiently.
What role do layer-2 networks like Arbitrum and Base play in Ethereum’s perpetual futures ecosystem?
Layer-2 networks dramatically reduce transaction costs and improve performance, hosting the majority of Ethereum-based perpetual futures activity while preserving the security of the underlying Ethereum base layer. GMX’s launch on Arbitrum in 2021 established the template that much of the sector has followed.
How do Solana and Hyperliquid compete with Ethereum layer-2s for perpetual futures trading?
Both offer lower fees and faster execution than Ethereum layer-2s, with Solana also benefiting from a large base of active retail traders. Hyperliquid built an application-specific chain optimized almost entirely for perpetual trading, giving it a performance edge on raw execution speed.
What challenges does Ethereum face in supporting decentralized perpetual futures long-term?
Ethereum’s primary challenge is liquidity fragmentation across its layer-2 ecosystem. Traders must often bridge assets between networks, creating friction that single-chain environments like Solana avoid. Improving interoperability and user experience across layer-2s is widely seen as essential to Ethereum remaining competitive in this market.
Article produced with the assistance of artificial intelligence and reviewed by the editorial team.
