Written by Xiao Bing
Within eight hours of Papertrade going live, one wallet demonstrated how to make money using it.
A textbook operation
First, what is Papertrade? It’s a perpetual futures platform built on Hyperliquid, with its main selling point being 1000x leverage. Launched on October 10, it has no order book and no market makers—instead, a single USDC pool acts as the counterparty for all traders. When you go long, the pool goes short; when you profit, your gains are paid out from the pool.
How is the price determined? It is directly taken as the midpoint of the best bid and ask prices on Hyperliquid.
Remember these two points: the pool passively accepts orders, and prices come from outside. Everything that follows is built around these two points.
Just after 6 p.m., an address purchased approximately 6,060 ETH on the Hyperliquid spot market, pushing the price up by about $3. The increase? 0.12%. On any normal leverage, this movement wouldn’t even cover transaction fees.
But Papertrade has 1000x leverage. 0.12% multiplied by 1000 equals 120%. This address has an open long position on Papertrade, and any price movement instantly doubles the margin.
One hour later, reverse the same sequence of actions: first, open a short position of 30 ETH with 660x leverage on Papertrade, for a notional value of $297 million. Then, go to Hyperliquid and sell approximately 6,590 ETH, driving the price down.
The total fees spent on the entire operation on Hyperliquid amounted to approximately $52,000. The amount withdrawn from Papertrade was $1.28 million. The return on investment is nearly 1:25.
The Block reviewed the on-chain history of this address: it deposited approximately $1.2 million and withdrew approximately $24.8 million on that day. Looking further back, this address began trading on Hyperliquid in February 2025 with an initial capital of $2 million, accumulating a total trading volume of $14.2 billion and a net profit of $13.1 million.
A seasoned trader with nearly two years of experience on Hyperliquid mastered its pricing mechanism on the very first day Papertrade launched.
Why does this set of operations work?
The design of Papertrade is actually quite simple: it aims to create a minimalist perpetual futures exchange. It eliminates the order book, market makers, funding rates, and slippage, instead allowing all traders to bet directly against a single pool. The money lost by losers funds the pool, while winners withdraw their profits from it. Losers also receive PAPER tokens as compensation. The platform refers to this as "turning liquidation into ownership."
This model works on one key assumption: that most leveraged traders lose money. As long as losers outnumber winners, the pool grows, PAPER holders receive dividends, and the system keeps running. The facts bear this out: Papertrade reports that the pool currently holds $5 million and has distributed $25 million to PAPER stakers. Within two days of launch, TVL approached $70 million, with over 10,000 active addresses. The market demand is real.
But this model has a structural weakness: it doesn't control its own pricing.
Market makers on traditional exchanges actively adjust their quotes when they see an oversized position in one direction, incorporating risk pricing. Papertrade’s liquidity pool does not. It accepts orders at whatever price it reads, regardless of whether the counterparty is a retail trader with a $100 margin or a seasoned trader with a meticulously constructed $2.97 billion notional position.
It’s like opening a casino where the odds are set by the casino next door, and your gamblers can随时 go over to change those odds. As long as the cost of changing the odds is lower than the money they win at your place, the business works.
A cost of $52,000 and a revenue of $1.28 million—clearly, this is a very profitable venture.
Platform
The response from Papertrade is: This is not an issue with the mechanism design, but rather that the initial position limit was set too loosely, and it is currently being tightened.
That’s true, but only half the story. Tightening the position limit does reduce the profit potential of a single attack to an unprofitable level. But consider this: if a platform markets itself with 1000x leverage, yet risk management severely restricts the actual position size you can open, how much real value does that 1000x leverage still hold?
The more fundamental issue is that this is not unique to Papertrade. As long as a platform’s pricing comes from external sources, its counterparties are passive pools, and leverage is so high that minor price movements can trigger massive profits or losses, those who manipulate prices stand to profit.
Hyperliquid’s own HLP liquidity pool has been hit by similar tactics at least twice. In March 2025, a whale manipulated ETH positions, causing HLP to lose approximately $4 million. In November of the same year, the POPCAT incident resulted in another $4.9 million loss. The pattern is consistent: manipulate the price at point A, then harvest profits at point B.
Papertrade adds another layer on top: it is built on Hyperliquid and uses Hyperliquid’s prices as its own quotes, effectively creating a higher-leverage casino on a market already proven to be manipulable.
Who is paying?
The DeFi derivatives sector is currently engaged in a leverage arms race. Each new platform tries to attract traders with higher multiples—50x, 100x, 500x, 1000x—and lower friction.
Traders were indeed drawn in. But when leverage is pushed to its limits, the risks of pricing and solvency ultimately fall on the liquidity pool. On centralized exchanges, market makers, risk management teams, and insurance funds absorb these risks—these are costs, but they enable the system to withstand shocks. Papertrade eliminated all these intermediaries, giving traders an极致 experience, while shifting the cost onto LPs in the pool.
"Turning settlement into ownership" sounds cool. But if the pool is continuously drained, PAPER's ownership is anchored to a shrinking base pool.
The $1.28 million loss from this incident is not fatal for Papertrade—the platform is still operational and TVL continues to rise. However, the structural issues it exposed will not disappear simply by tightening a few parameters.
Selling the thrill of 1000x leverage is easy, but the other side of thrill is fragility.