Original author: David Christopher
Shenchao TechFlow
Shenchao Overview: A perpetual futures exchange that transforms losing traders into "market makers" launches tomorrow. It replaces counterparty trading with a shared liquidity pool and rewards losers with tokens, turning liquidations into ownership. For traders and DeFi professionals, this represents an extreme stress test of incentive design and risk boundaries.
One of DeFi's strangest perpetual futures experiments is about to launch.
Papertrade is a perpetual futures exchange built on HyperEVM (Hyperliquid’s smart contract layer), co-founded by the well-known "semi-anonymous" traders Jez and Blurr. Pre-deposits opened yesterday, and live trading is set to launch tomorrow, October 10—the anniversary of last year’s epic crypto crash.
When we拆解 Papertrade in May, its offering sounded outrageous: up to 1000x leverage, zero slippage, no funding rates, and a token called PAPER that traders earned 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 does Papertrade work?
Paper trading is essentially a casino, where losing traders gradually become the owners of the casino's future profits.
Papertrade does not match traders through an order book or use external market makers; instead, it acts as the counterparty for every trade through a shared USDC funding pool called Martingaler LP. This pool starts at $0 and is funded by traders' losses.
This LP is its true innovation and works as follows:
Place an order: Deposit USDC (minimum $10, plus a one-time $1 activation fee), then trade BTC or ETH with up to 1000x leverage.
Earn and get paid: If your trade is profitable, you can reclaim your initial margin and receive profits from the pool. If the pool lacks sufficient funds, unpaid profits are queued on a first-come, first-served basis. For example, if you are owed $100 and the next trader loses $60, you will receive $60 first, with the remaining $40 still pending.
Lose and Earn PAPER: If your position incurs a loss or is liquidated, the loss amount will enter the pool, and PAPER tokens will be minted and awarded to you. When the pool is below $2 million, you can receive up to 100 tokens for every $1 of eligible loss. As the pool grows, this exchange rate decreases.
Stake PAPER: You can stake PAPER to earn a share of the exchange’s trading fee revenue in USDC. Once the pool exceeds $5 million, additional pool earnings will also be distributed to stakers.
These are just the basic mechanisms; if you'd like to dive deeper, we strongly recommend reading our original article and the Papertrade documentation for a more comprehensive understanding of the protocol.
How will the weekend launch unfold?
Given that HyperEVM may experience congestion due to high activity, the launch is expected to be phased in gradually rather than allowing everyone to begin trading simultaneously.
To this end, Papertrade has established several rollout phases:
Stage 0 (Thursday): Pre-deposits opened yesterday and will remain open until launch. Depositing early does not increase transaction priority, but deposits made after launch may experience delays due to blockchain congestion.
Phase 1 (Saturday): Begin trading via the Papertrade website, where approved service providers submit transactions you have signed on-chain. This design is intended to limit the ability of bots to jump the queue. Liquidations take priority over new positions, and smaller trades may experience longer wait times.
Future phases: Bots and AI agents will be able to trade directly, third-party apps can earn fees by onboarding traders, and PAPER will eventually become transferable. It cannot be sold at launch.
Trading is expected to resume approximately one hour after the HyperEVM upgrade on Saturday, though the exact time has not been announced and there is a small chance it may be delayed until Sunday.
Who is in line to enter?
Even if you’re not a trader yourself, an ecosystem around Papertrade is already forming, offering other ways to engage in this chaos. For example:
DX Research Group / DXAP: The team behind DX Terminal operates DXAP, an invite-only application that allows AI agents to trade users' Hyperliquid accounts. Founder poof stated that its Superclip agent program trades using DXAP users' funds, though the exact mechanism remains unclear.
PaperStrategy: This is an anonymous project that allocates 90% of the 10% tax on PSTR token trades to fund strategies for accumulating and staking PAPER. Of the resulting USDC staking income, 90% is used to repurchase and burn PSTR, while 10% goes to the team.
PaperDAO: On October 7, PaperDAO completed its funding round via daos.world, pooling user funds into a treasury with plans to mine PAPER upon launch and stake to earn USDC income. Its PULP token represents a proportional share of the treasury and is redeemable after PAPER transfers are enabled.
Bottom line
Despite the high level of interest surrounding it, there are still many risks to be aware of:
Delayed Payouts: If too many traders profit, the fund pool may experience a shortfall, and profitable traders will wait indefinitely for payouts.
Price manipulation: Manipulated Hyperliquid prices—which serve as oracles for Papertrade positions—could allow traders to unfairly withdraw funds from the pool.
PAPER mining: As tempest from Delphi Digital pointed out, paired long-short positions may allow traders to mint PAPER at low cost, diluting existing holders, while the liquidity pool gains little additional cash. PAPER itself may never be worth what traders spend to acquire it.
Extreme leverage: With 1000x leverage, a price movement of just 0.1% in an unfavorable direction could liquidate your position.
However, the protocol’s vision is stunning, and the hype surrounding its launch clearly shows that this release cannot be ignored. Whether Papertrade will ultimately succeed remains to be seen, but it’s refreshing to see something genuinely different enter the market.
DeFi needs more experiments like this.