For years, Ethereum has been synonymous with decentralized finance. It pioneered on-chain financial tools, such as lending protocols and tokenized assets, which today underpin much of the crypto economy. But one of the fastest-growing sectors of cryptocurrencies, perpetual or “offender” futures, has largely flourished elsewhere.
Ask traders where on-chain perpetuals live today, and the answer is more likely to be Hyperliquid or Solana than Ethereum. This is because perpetuals demand something that Ethereum’s base layer was never designed to optimize for: extremely fast, low-cost, high-frequency trading.
“Criminals require frequent transactions, fast execution and high liquidity,” said AJ Warner, chief strategy officer at Offchain Labs, the lead developer behind Arbitrum Layer 2. “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 to marketplaces attracting institutional attention.
Why Ethereum L1 was left behind
Perpetuals are one of the most demanding cryptographic applications. Your exchanges require thousands of quick updates, settlements, funding payments, and order execution, all without interruption.
“Chain offenders are really difficult,” said Brian Smith of the Jito Foundation. “It’s not just the average performance that matters, but the 99.99% success rate. If your criminal’s platform fails, that’s an existential risk.”
Ethereum’s security architecture made it an ideal settlement layer, but historically, its block times and gas costs made it an expensive place to run latency-sensitive business applications.
When the decentralized criminal exchange GMX launched on Arbitrum in 2021, it helped establish a model that many others would follow. “Ethereum mainnet fees were prohibitively expensive, which naturally attracted rogue builders to Arbitrum,” Warner said. Offchain Labs then capitalized on that momentum and actively prioritized perpetuals as a strategic category.
“By prioritizing the vertical, we were able to attract a concentration of builders and capital into the ecosystem.” Today, much of Ethereum’s perpetual trading activity takes place not on the Ethereum mainnet, but on layer 2 networks such as Arbitrum and, increasingly, Base.
Ethereum’s Layer 2 ecosystem has become something of a compromise: preserving the security of Ethereum while dramatically improving trading performance. Networks like Arbitrum and Base have reduced blocking 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 behind Aerodrome, a decentralized exchange that lives on the Base network, argued that technical performance is only part of the story.
“Trade 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 are launched where traders already are, liquidity providers follow traders, and then new applications are built around existing liquidity. It’s one of the reasons Boulous sees Aerodrome as complementing perpetual exchanges rather than competing with them.
“You can think of criminals as customers of spot exchanges,” Boulous said. Spot exchanges provide pricing, liquidity and hedging opportunities that perpetual markets depend on. “The spot and the criminals are two sides of the same liquidity coin.”
Why Solana and Hyperliquid increased
Still, Ethereum’s layer 2 ecosystem is not the only place where developers can build high-performance business infrastructure. Hyperliquid created a specific application 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 Jito’s Smith, that user base matters as much as the technology. “The most important ingredient for any exchange platform, but especially for criminals, is organic retail flow,” he said. “Solana is the king of retail.”
Smith also argues that Ethereum faces an additional challenge: fragmentation. “You need to be able to market 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 activities. While that approach dramatically reduced costs and improved performance, it also dispersed users and liquidity across multiple ecosystems. Traders often need to pool assets across networks, making the experience less seamless than in single-chain ecosystems like 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 has become more scalable.
However, not everyone sees that fragmentation as a fatal flaw. Some Ethereum proponents argue that the focus on execution overlooks the network’s long-term role in the on-chain financial stack. Matthieu Saint Olive, product manager at MetaMask, maintains that the framing itself does not gloss over what is happening. “I would gently push back on the premise that this is a competition in the first place,” he told CoinDesk.
Purpose-built trading chains may ultimately gain in execution speed, but still require a place to obtain collateral, liquidity, stablecoins, and settlement. “Ethereum’s role is the settlement and collateral foundation 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 2 or remain closely connected to the Ethereum ecosystem for collateral, settlement, and developer tools. “L2s are Ethereum’s way of adapting 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 conversation shifts 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, Offchain Labs’ Warner argued, still need greater liquidity, more efficient use of capital and better execution before deploying significant trading volume on-chain. “Capital is still fragmented across places,” 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 simple: “You have to be able to do things on-chain that you can’t do, or can’t do at such a low price, in traditional markets.”
While much of today’s decentralized perpetual volume still revolves around cryptoassets, market participants increasingly see the infrastructure that supports criminals as the foundation of broader capital markets. Saint Olive believes that perpetual companies are already demonstrating what programmable markets can become.
“Criminals are the leading indicator, the first place where you can see how traditional financial activity actually migrates up the chain,” Saint Olive said.
That may also explain why Ethereum’s role in the market is evolving rather than declining.
Solana and purpose-built chains like Hyperliquid have established themselves as places where merchants execute high-speed transactions. Meanwhile, Ethereum 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 out: fragmented liquidity at Layer 2, better interoperability between networks, and a more seamless user experience. If possible, its proponents argue that Ethereum does not necessarily have to become the fastest place to trade perpetuals. It simply needs to remain the deepest and most trusted place to resolve them.
Read more: Perpetual futures could become the next cryptocurrency ETF moment
