Zero Funding Rate? The New Contract Design of HyperEVM That Everyone Abroad is Talking About
- Core Insight: Crypto trader Jez has launched a new perpetual contract protocol, PaperTrade, on HyperEVM. It adopts a zero-fee, zero-slippage, zero-funding-rate model. However, in essence, it is a mechanism where users bet against the LP pool, and it converts trading losses into platform shares via the PAPER token.
- Key Elements:
- PaperTrade reads Hyperliquid quotes but does not match orders; transactions are settled directly between the user and a public LP pool, similar to the historical "bucket shop" betting model.
- The LP pool does not accept external deposits and relies solely on the margin from user losses. User profits are queued in an on-chain debt queue, waiting to be filled by subsequent losing trades.
- The PAPER token is minted based on the amount of user losses according to a curve. When the LP balance is below $2 million, every $1 loss mints 100 PAPER tokens; the minting rate decays once the balance exceeds $2 million.
- PAPER stakers receive protocol fee income and any excess from the LP pool above $5 million, forming a closed loop where "losers get shares, and winners take the losers' money."
- Strategy suggestion: Mint PAPER by incurring losses when the LP pool's TVL is low, and stake PAPER to earn dividends when the TVL is high.
Trader Jez, a well-known crypto figure, announced the launch of PaperTrade, a new protocol built on HyperEVM, sparking heated discussions within the English crypto community.
Jez has long been a proponent of perpetual contracts. Early on, he took a significant position in Hyperliquid, with his wallet address ranking high on the airdrop leaderboards for Lighter and Variational. Now, he's entering the fray himself, building a Perp DEX with zero fees, no slippage, and no funding rates.
Old-School Bucket Shops Go On-Chain
PaperTrade's mechanism has a somewhat notorious historical predecessor. In early 1900s American towns, 'bucket shops' would masquerade as brokerage firms, displaying real-time NYSE quotes with chalk on a board behind the counter. However, customer orders never left the shop owner's drawer. Essentially, it was the customer betting against the shopkeeper. This practice was outlawed by New York state in 1909 and had largely vanished by the 1920s.
When a user opens or closes a position on PaperTrade, the platform directly reads the order book price from Hyperliquid and settles the PnL difference against a public LP pool. Crucially, no order ever enters Hyperliquid's matching engine, and no actual perpetual swap changes hands. The trade is always between the user and the LP pool, with no third-party counterparty.
Perpetuals + P2P + DeFi Ponzi
PaperTrade simultaneously borrows models from DeFi yield farming and P2P lending.
User losses on PaperTrade are added directly into the protocol's LP pool, while user profits are subject to a cut taken by the platform. The smaller the price movement, the more profit is taken. In other words, the more profit a user makes, the smaller the cut the protocol takes.
Unlike HLP, PaperTrade's LP pool has no team pre-deposit, no VC funding, and does not accept external deposits of any kind. Its only source of capital is the losing traders' collateral.
Here's the problem: if the LP pool only has $100, but a user wins $5,000, how does the protocol pay?
PaperTrade brings the traditional P2P lending order queue on-chain.
This $5,000 debt enters a sequential on-chain queue, waiting for subsequent losing trades to fill the hole. The queue pays out in order, from beginning to end. The user's principal is always returned immediately; only the profit portion gets queued.
Theoretically, the LP can become temporarily 'insolvent', but every winner will eventually be paid, provided that losers' losses can cover the platform's debt to winners.
If the story ended here, the project would be doomed. If the LP pool runs dry, winners might have to wait a long time in line to claim their profits. This disincentivizes trading, causing traders to leave. Eventually, there won't even be losers left, and the platform's debt to winners becomes bad debt.
The core of PaperTrade lies in its token, PAPER.
For every dollar a user loses, the protocol mints a certain number of PAPER tokens according to a curve.
When the LP balance is below $2 million, the minting rate is fixed at 100 PAPER per $1 loss. Once the LP exceeds $2 million, the rate starts to decay. The higher the LP balance, the fewer PAPER tokens are minted per loss.
X-axis: PAPER received per dollar lost; Y-axis: LP Balance (unit: 1M)
Staking PAPER entitles holders to two streams of dividends: first, the protocol's fee revenue; second, once the LP balance exceeds $5 million, all surplus above that threshold is distributed to stakers.
In other words, the LP pool is designed with a $5 million cap. Beyond that, all user losses are funneled back to PAPER holders. This creates a closed loop: 'Losers get platform equity, winners take losers' money, and the platform takes a cut from winners to subsidize losers.'
Therefore, a rational participation strategy can be summarized as: bet (and lose) to mint PAPER when the LP pool's TVL is low, and then stake PAPER to collect dividends when the LP pool's TVL is high.
A Stress Test for HyperEVM
In my opinion, PaperTrade's biggest uncertainty lies in the very network it's deployed on – HyperEVM.
PaperTrade merely uses Hyperliquid's quoted prices as a free, native oracle, while all other logic resides in HyperEVM smart contracts.
This means any other high-performance chain, as long as it's willing to integrate an external price oracle, could replicate PaperTrade's entire mechanism verbatim on its own network. A copycat could even offer things HyperEVM currently cannot: lower gas fees, higher TPS, more generous early subsidies, or more aggressive token incentives.
During the HyperEVM meme season in Q1 of last year, there was a period of slow transaction speeds and high gas fees. The launch of PaperTrade represents another significant test for HyperEVM.
