Papertrade Pays You to Lose
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WHAT HAPPENED
Papertrade opened trading on HyperEVM on Oct. 10, an ominous anniversary for the crypto industry, but the protocol is off to a promising start ... for now.
It is a fully onchain application that allows up to 1,000x leverage on BTC and ETH perpetuals with no funding rates and no slippage. Trades are effectively swaps against a single protocol-owned USDC pool, the “Martingaler LP,” which started at $0 and is funded only by trader losses. Prices are the Hyperliquid BBO (best bid and offer) midpoint read onchain via precompiles (something HyperEVM uniquely enables).
Losing trades mint PAPER, which is currently non-transferable and can be staked. PAPER stakers receive a share of realized PnL and fees while the LP fills toward a ~$5m soft cap, and essentially all surplus above it.
The ability to take 1,000x leveraged positions is attractive for crypto degens, and it’s also enticing that you get “rewarded” for losing in the form of PAPER tokens. Many traders have been purposely getting liquidated to farm PAPER in the hopes that these tokens will make back their losses.
This has been a hyped-up launch for a while, particularly because of the background of the founders, Jez (@izebel_eth) and Blurr. Watch this interview for a more in-depth explanation of the protocol and its backstory.
As of Oct. 15, the venue has processed ~$1.11t in total volume and total trader PnL is -$54.1m. Total PAPER staking rewards stood at $45.6m and total PAPER supply at 8.07b tokens. To see live metrics, check out this dashboard.
OUR TAKE
One interesting development was the emergence of a “manipulator” on the day of Papertrade’s launch. This address (0x2025137a136bea7446deba681cbfc7cf1970840e) was moving the underlying Hyperliquid ETH reference price while holding synthetic exposure on Papertrade. The trader was taking advantage of a weakness in the design that was explicitly acknowledged in the risks section of the project’s docs. Essentially, the strategy goes as follows: take large amounts of synthetic exposure on Papertrade, nudge the HL mid by a few basis points, close Papertrade position, flip opposite direction, and move HL mid the other way, repeat. The team responded by tightening open-interest caps both onchain and at the relayer level.
The protocol’s revenue is absurd. DefiLlama data shows cumulative revenue at $43m after five days, or roughly $8 million to $9 million per day. This has put Papertrade behind only the major stablecoin issuers and ahead of Hyperliquid and Pump.fun.
But “revenue” here just means trader losses, and the losers are the shareholders. It’s mandatory that every staker is a prior loser because it’s not possible to acquire PAPER in any other way.
That makes valuing PAPER unusually tricky. Many traders have lofty targets for the token, but it’s hard to know this early what will happen with a protocol. The math many people are posting on X will hold only if volume does, and much of the volume is farming that makes sense only while PAPER is worth more than the loss it takes to mint it.
Once PAPER becomes transferable, the market price will determine how much farming happens, and that, in turn, will determine long-term revenue. Over 99% of supply is staked today because there’s nowhere else for it to go.
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