What to Know About Papertrade's Launch
Hyperliquid's 1000x perps experiment opens Saturday. Here's how it works, who's lining up, and what could go wrong.
One of DeFi's strangest perps experiments is about to go live.
Papertrade, a perpetuals exchange built on HyperEVM (Hyperliquid's smart contract layer) and co-founded by popular, "semi-pseudonymous" traders Jez and Blurr, opened pre-deposits yesterday with live trading slated fatefully for tomorrow, Oct. 10, the anniversary of crypto’s monumental crash last year.
When we broke down Papertrade in May, the pitch sounded outlandish: up to 1000x leverage, no slippage or funding payments, and a token, PAPER, that traders earn by losing.
Five months later, here's a quick refresher on how it works, how Saturday's rollout will unfold, and a glimpse into the ecosystem already forming around it.
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How Papertrade Works
Papertrade is essentially a casino where losing traders gradually become owners of the house's future earnings.
Instead of matching traders through an order book or using outside market makers, Papertrade takes the other side of every trade through a shared USDC pool, called a Martingaler LP, a pool that starts empty at $0 and fills from traders' losses.
This LP is its real innovation and works like such:
Place a trade: Deposit USDC ($10 minimum plus a one-time $1 activation fee), then bet on BTC or ETH at up to 1000x leverage.
Win and get paid: If your trade is profitable, you get your original collateral back, plus profits from the pool. If the pool runs short, unpaid profits wait in a first-come, first-served queue. For example, if you're owed $100 and the next trader loses $60, you get $60 and wait for the remaining $40.
Lose and earn PAPER: If your position loses money or gets liquidated, the losses fund the pool and mint PAPER, which you receive, initially at up to 100 tokens per $1 of qualifying losses while the pool holds less than $2M. That rate declines as the pool grows.
Stake PAPER: You can then stake your PAPER to earn a share of the exchange's trading fees in USDC. Once the pool exceeds $5M, additional pool gains can also go to stakers.
These are just the basic mechanics, so if you want to dig deeper, I'd highly recommend reading our original article and Papertrade's docs for a more holistic view of the protocol.
How Launch Weekend Will Play Out
Expect a gradual rollout rather than everyone trading at once given the HyperEVM will likely get congested from all the activity.
In anticipation of this, Papertrade set out several launch phases:
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Phase 0 (Thursday): Pre-deposits, as mentioned, opened yesterday and remain open until launch. Depositing early doesn't improve trading priority, but funding an account after launch may mean you experience delays as a result of the chain's congestion.
Phase 1 (Saturday): Trading begins through Papertrade's website, where approved services submit trades you've signed onchain: a feature meant to limit bots' ability to jump the line. Liquidations take priority over new positions, and smaller trades may wait longer.
Later phases: Bots and AI agents will be able to trade directly, third-party apps can earn fees for bringing in traders, and PAPER will eventually become transferable. It can't be sold at launch.
Trading is expected to start roughly an hour after a HyperEVM upgrade expected Saturday, though an exact time hasn't been announced and there's a small chance it slips to Sunday.
Who's Lining Up to Trade
If you aren't yourself a trader, an ecosystem is already forming around Papertrade, offering other ways to partake in the mayhem. For example:
DX Research Group / DXAP: The team behind DX Terminal runs DXAP, an invite-only app that lets AI agents trade users' Hyperliquid accounts. Founder poof says its Superclip agent plans to trade with DXAP users' funds, though exactly how remains unclear.
PaperStrategy: Then there's PaperStrategy, an anonymous project using 90% of a 10% tax on trades of its PSTR token to fund strategies that accumulate and stake PAPER. Of the resulting USDC staking revenue, 90% buys back and burns PSTR, while 10% goes to the team.
PaperDAO: PaperDAO raised funds through daos.world on Oct. 7 and pooled users' money into one treasury, which plans to farm PAPER at launch and stake it for USDC revenue. Its PULP token represents a proportional share of the treasury, redeemable for PAPER once transfers are enabled.
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The Bottom Line
For all the energy around it, there are plenty of risks to be aware of:
Delayed payouts: If too many traders win, the pool could run short of money, leaving profitable traders waiting indefinitely for payouts.
Price manipulation: Manipulated Hyperliquid prices (which effectively act as an oracle for positions on Papertrade) could allow traders to extract money unfairly from the pool.
PAPER farming: As Delphi Digital's tempest calls out, paired long and short positions could let traders mint PAPER cheaply, diluting existing holders without adding nearly as much cash to the pool. PAPER itself may also never be worth what traders spend acquiring it.
Extreme leverage: At 1000x, a roughly 0.1% move against a position could wipe out its margin.
Yet the protocol's incredibly imaginative and the excitement forming around launch clearly indicates this launch should not be ignored. Whether Papertrade ultimately works remains to be seen, but it's refreshing to see something genuinely different come to market.
DeFi could use more experiments like it.
David Christopher
David is a writer/analyst at Bankless. Prior to joining Bankless, he worked for a series of early-stage crypto startups and on grants from the Ethereum, Solana, and Urbit Foundations. He graduated from Skidmore College in New York. He currently lives in the Midwest and enjoys NFTs, but no longer participates in them.
