Ethereum pivots to settlement role as perps trading migrates to 2 L2 networks

Ethereum is shifting from an execution venue to a settlement layer as perpetual futures trading migrates to layer-2 networks Arbitrum and Base.

"Perps require frequent transactions, fast execution, and deep liquidity," AJ Warner, chief strategy officer at Offchain Labs, the developer behind Arbitrum, said. "That makes them a natural use case for the Arbitrum platform."

When decentralized perps exchange GMX launched on Arbitrum in 2021, it established a template many others followed. Today, much of Ethereum's perpetual trading activity lives on L2 networks rather than the mainnet. On Solana, low fees and a large retail base created a competing hub, while Hyperliquid built an application-specific chain optimized for perps.

The division of labor — Ethereum as settlement layer, L2s as execution venues — is not guaranteed to persist. Fragmented liquidity across L2 networks remains a challenge. Ethereum co-founder Vitalik Buterin acknowledged earlier this year that the original L2 roadmap vision "no longer makes sense" as L2s have decentralized more slowly than expected.

Why Ethereum L1 fell behind

Perpetual futures are among the most demanding applications in crypto. Exchanges require rapid-fire updates, liquidations, funding payments and order executions without interruption. "Perps onchain are really hard," Brian Smith of the Jito Foundation said. "It's not just the average performance that matters, it's the 99.99% success rate."

Ethereum's security-first architecture made it an ideal settlement layer, but its block times and gas costs made it expensive for latency-sensitive trading. GMX's 2021 launch on Arbitrum demonstrated that L2s could preserve Ethereum's security while improving performance.

The network-effects moat

Chris Boulous of Dromos Labs, the developer behind Aerodrome on Base, argued 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."

Boulous sees spot and perps as complementary. "You can kind of think of perps as a customer of spot exchanges," he said.

The institutional question

As institutions examine onchain derivatives, the conversation is shifting from whether decentralized perps can work to whether they can compete with traditional infrastructure. "It comes down to execution, custody, and predictability, not ideology," Matthieu Saint Olive, a staff product manager at MetaMask, said.

Warner argued institutions need deeper liquidity and better execution before deploying significant volume onchain. "Capital is still fragmented across venues," he said.

For Boulous, the next milestone is clear: "You have to be able to do things onchain that you can't do, or can't do as cheaply, in traditional markets."

This article is for informational purposes only and does not constitute investment advice.