Liquidated? You're a Shareholder Now — Papertrade's 1000x Leverage and Loss Mining Experiment

Original Author: David Christopher

Original Compilation: TechFlow (深潮)

TechFlow Introduction: A perpetual contract exchange that gradually turns losing traders into "house" is launching tomorrow. It replaces counterparties with a shared liquidity pool, rewards losers with tokens, and turns liquidations into ownership. For traders and DeFi practitioners, this is an extreme stress test of incentive design and risk boundaries.

One of DeFi's strangest perpetual contract experiments is about to go live.

Papertrade is a perpetual contract exchange built on HyperEVM (Hyperliquid's smart contract layer), co-founded by well-known "semi-anonymous" traders Jez and Blurr. Pre-deposits opened yesterday, and live trading is scheduled to begin tomorrow, October 10 — the anniversary of last year's epic crypto crash.

When we broke down Papertrade back in May, its proposal sounded absurd: up to 1000x leverage, zero slippage, no funding rates, and a token called PAPER that traders earn by losing money.

Five months later, here's a quick recap of how it works, how the weekend launch will unfold, and the ecosystem that has already formed around it.

How Papertrade Works

Papertrade is essentially a casino where losing traders gradually become owners of the casino's future revenue.

Rather than matching traders through an order book or using external market makers, Papertrade acts as the counterparty to every trade through a shared USDC pool called Martingaler LP. This pool starts at $0 and is filled by traders' losses.

This LP is its real innovation, and it works as follows:

Place an order: Deposit USDC (minimum $10, plus a one-time $1 activation fee), then bet on BTC or ETH with up to 1000x leverage.

Win and get paid: If your trade is profitable, you get back your original margin and earn profits from the pool. If the pool has insufficient funds, unpaid profits queue up on a first-come, first-served basis. For example, if you're owed $100 and the next trader loses $60, you receive $60 first, and the remaining $40 continues to wait.

Lose and earn PAPER: If your position loses or gets liquidated, the loss amount goes into the pool, and PAPER tokens are minted and distributed to you. While the pool is below $2 million, every $1 of qualifying losses earns up to 100 tokens. As the pool grows, this exchange rate decreases.

Stake PAPER: You can stake PAPER to earn a proportional share of the exchange's USDC trading fee revenue. Once the pool exceeds $5 million, additional pool yields can also be distributed to stakers.

These are just the basic mechanics. If you want a deeper understanding, we strongly recommend reading our original article and Papertrade's documentation for a more comprehensive view of the protocol.

How the Launch Weekend Will Unfold

Given that HyperEVM may become congested from heavy activity, expect a gradual rollout rather than everyone trading simultaneously.

To this end, Papertrade has set up several launch phases:

Phase 0 (Thursday): Pre-deposits opened yesterday and will continue until launch. Depositing early does not increase trading priority, but funding after launch may face delays due to on-chain congestion.

Phase 1 (Saturday): Trading begins through the Papertrade website, with approved service providers submitting transactions you've already signed on-chain — a design intended to limit bots' ability to front-run. Liquidations take priority over new position openings, and small trades may wait longer.

Later phases: Bots and AI agents will be able to trade directly, third-party apps can earn fees by bringing in traders, and PAPER will eventually become transferable. It cannot be sold at launch.

Trading is expected to begin roughly one hour after Saturday's HyperEVM upgrade, though the exact time has not been announced, and there's a small chance of delay to Sunday.

Who's Lining Up to Get In

If you're not a trader yourself, an ecosystem has already formed around Papertrade, offering other ways to participate in the chaos. For example:

DX Research Group / DXAP: The team behind DX Terminal operates DXAP, an invite-only app that lets AI agents trade users' Hyperliquid accounts. Founder poof says its Superclip agent plans to trade using DXAP users' funds, though the specific approach remains unclear.

PaperStrategy: An anonymous project that uses 90% of the 10% tax on PSTR token trades to fund strategies that accumulate and stake PAPER. Of the resulting USDC staking revenue, 90% is used to buy back and burn PSTR, with 10% going to the team.

PaperDAO: PaperDAO completed its fundraising on October 7 through daos.world, pooling users' funds into a treasury with plans to mine PAPER at launch and stake it for USDC revenue. Its PULP token represents a proportional share of the treasury and can be redeemed once PAPER transfers are enabled.

The Bottom Line

Despite the hype around it, there are still many risks to be aware of:

Delayed payouts: If too many traders profit, the pool may face a funding shortfall, and profitable traders will wait indefinitely for payouts.

Price manipulation: A manipulated Hyperliquid price (which effectively serves as the oracle for Papertrade positions) could allow traders to unfairly drain funds from the pool.

PAPER mining: As Delphi Digital's tempest pointed out, paired long and short positions could let traders mint PAPER at low cost, diluting existing holders while the pool doesn't gain much corresponding cash. PAPER itself may also never be worth what traders spent to obtain it.

Extreme leverage: At 1000x leverage, a price move of roughly 0.1% in the unfavorable direction could wipe out a position's margin.

Still, the protocol's imagination is stunning, and the hype surrounding the launch makes it clear this release is not to be ignored. Whether Papertrade ultimately succeeds remains to be seen, but it's genuinely refreshing to see something truly different enter the market.

DeFi needs more experiments like this.