Papertrade’s premise: the only way to get PAPER is to lose money
IOSG’s latest analysis focuses on Papertrade, a synthetic perpetuals protocol on HyperEVM that went live on Oct. 10, 2026. The venue currently offers only BTC and ETH markets and allows leverage of up to 1,000x.
The team behind the project is Jez, identified as Colin Hong, a former venture partner at Standard Crypto, together with an anonymous developer known as Blurr. IOSG said the project raised no outside funding, had no pre-mine, and reserved no allocation for the team. Under the protocol’s design, users can obtain PAPER only by taking losses on the platform.
The report uses data through Oct. 19, 2026 at 10:00 UTC, or 212 hours after launch. By that point, Papertrade had generated a headline trading volume of $1.361 trillion, a figure inflated by notional turnover under leverage as high as 1,000x. For comparison, IOSG said the entire Hyperliquid ecosystem recorded $5.2 billion in 24-hour perpetuals volume over the same period.
That headline number is far larger than the actual cash that entered the system. Around 23,000 addresses deposited $335 million. Losing closes totaled $249 million, and net trader losses came to $63.2 million.
Where the $63.2 million in net losses went
IOSG argues that the most important part of the Papertrade model is what happens to those net losses. Of the $63.2 million traders lost on a net basis, $54.1 million, or 86%, was distributed to PAPER stakers. Another $4.7 million remained in the LP pool, while developers received about $4.5 million, or 7%.
That means most of the protocol’s take did not stay with the team. It flowed back to PAPER holders. IOSG says the unusual part is that the wallets collecting those distributions are largely the same wallets that lost money to mine the token. The top 1,000 wallets held 88% of PAPER, absorbed 81% of all losses, and received 91% of staking distributions.
IOSG summed up the structure in blunt terms: it resembles a casino that gives most of the rake back to gamblers.
Staking income came in waves tied to mining economics
The report says staking income was not steady. It moved in bursts, tracking changes in mining returns.
- During the first 10 hours after launch, stakers received $24 million.
- From Oct. 12 through Oct. 16, a second wave of wash-style activity generated another $24.9 million.
- On Oct. 17, staking income dropped to $800,000.
- On Oct. 18, after the perpetual market for PAPER went live, distributions recovered to $2.1 million for the day.
IOSG’s point is that PAPER staking is effectively a claim on future losses, and those losses appear only when mining remains attractive enough to keep activity going.
PAPER now has a price, but the market is thin
On Oct. 18, Paragon listed para:PAPER on Hyperliquid as a HIP-3 perpetual market. It opened at $0.012, climbed to $0.035 within two hours, and later traded around $0.024.
At that price, the 8.69 billion PAPER already issued implied a market value of about $211 million. Using IOSG’s estimated terminal supply of roughly 12.7 billion tokens, the fully diluted figure would be about $308 million. IOSG said the $0.0243 level was roughly double the cost of mining PAPER through offsetting trades.
PAPER itself still cannot be transferred. para:PAPER is a pre-launch perpetual with isolated margin and up to 3x leverage. Open interest was about $5 million, and the underlying asset is a token that cannot currently be delivered and has no spot market for arbitrage.
How Papertrade prices positions
Papertrade reads a price once when a position is opened and once when it is closed. The contract uses a HyperCore precompile to fetch the midpoint between the best bid and best ask on Hyperliquid. Orders themselves are not routed to Hyperliquid for execution.
There is no order book inside Papertrade. Single-position notional size is capped at $10 million. Under that setup, traders face no slippage regardless of order size and pay no funding rate. They are trading directly against a pool.
The LP pool is a tank with no backstop
IOSG describes the LP pool as a tank with an overflow outlet. It is the only counterparty in the system. There is no market maker, no insurance fund, and no balance sheet behind it. The pool started from zero, and outside capital cannot be deposited into it.
- When traders close at a loss or are liquidated, 98% of the loss goes into the pool.
- When traders close at a profit, the pool pays out, subject to the profit haircut described later in the report.
- If the pool runs dry, unpaid profits enter a first-in, first-out queue and wait for future losses to refill the system.
- Any amount above the $5 million cap is pushed to PAPER stakers.
The team announced on Oct. 17 that the cap would be raised to $10 million. IOSG said on-chain reads still showed a stakerCap of $5 million through Oct. 19, and the report found no explanation for the delay.
Every close, whether profitable or not, also incurs a 2% fee on PnL. Stakers receive 1% and developers receive 1%. If a winner queue ever appears, those fee splits stop.
IOSG stresses that the money in the pool is not promised to any one group. How much ends up with winners and how much overflows to stakers depends entirely on the path of trading outcomes.
The central risk: winners are not guaranteed immediate payment
In IOSG’s view, the most important fact about Papertrade is that it does not guarantee winners will always get paid on time. On a conventional exchange, profitable traders are ultimately backed by market makers, an insurance fund, or the exchange’s own capital. Papertrade has none of those.
The pool contains only money left behind by losing traders, and the pool cap is intentionally limited. Once excess funds are swept to stakers, they cannot be reclaimed for future payouts. If profits owed to winners exceed what the pool can cover, those winners are effectively waiting on traders who have not yet lost money. The contract has no mechanism that can force those future losses to arrive.
IOSG says this is not strictly a Ponzi structure because no yield is promised and the house edge is real. But from the perspective of a winner waiting in line, the dependence on fresh losses can look very similar.
Tail winners are the real stress case
A single position is unlikely to drain the pool on its own. With a $10 million notional cap per position, even a 1,000x long would need a move of roughly 57% to create a liability near $5 million.
The issue is that one wallet can open many positions. IOSG highlighted address 0x2025, which at one point held about 30 ETH short positions of roughly $9.9 million each, or $297 million in aggregate notional. At that scale, a 2% move in the wrong direction would be enough to create liabilities larger than all the money in the pool.
The report says that on the first night after launch, 0x2025 pushed the Hyperliquid midpoint and winners pulled $2.4 million from the pool within 35 minutes. At 21:45 UTC the pool still held $4.91 million. By 22:20 UTC it was down to $2.48 million. IOSG said nothing similar appeared afterward.
How PAPER is issued
When the LP pool is below $2 million, every $1 of loss mints 100 PAPER. Once the pool rises above $2 million, the mining rate becomes 100 × (120M / (120M + H))², where H is a non-decreasing high-water mark that tracks cumulative inflows above the $2 million threshold.
At the time of the report, H stood at $243 million. That meant each $1 of loss minted only 10.9 PAPER, down from 100 at launch.
IOSG estimates total supply will asymptotically approach about 12.7 billion PAPER. That includes 12 billion from the main curve, plus another 660 million minted during the first hour before the pool reached $2 million. So far, 8.69 billion tokens had been issued, or 69% of the estimated cap.
Staking does not mint new tokens
Staking PAPER does not create additional supply. The minimum stake is 1,000 PAPER, there is no lockup, and users can stake or unstake at will. Because PAPER is still non-transferable, 99.3% of the supply was staked at the time of the report.
Distributions are paid in USDC and allocated pro rata by stake size. There are no tiers and no boosted rewards.
IOSG says three rules determine when stakers actually receive cash:
- If a winner queue appears, queued winners always come first. When the pool cannot fully pay a winner, the shortfall enters a FIFO queue, available cash for everyone else drops to zero, and fee sharing stops. New losses are tracked separately and used to repay the queue. Stakers receive nothing until the queue is cleared. This had not happened as of Oct. 19.
- Overflow is swept in batches, not continuously. A keeper calls pushStakerFees() to move funds above the cap into the staking contract. Once swept, that money is no longer available to future winners.
- Between sweeps, winners have priority. A profitable close is paid immediately in the same transaction, while overflow waits for the next sweep.
The house edge is not just the 2% fee
Papertrade does not charge by notional size. Beyond the 2% fee on PnL, IOSG says the protocol’s edge is embedded in liquidation rules and profit haircuts.
- The liquidation threshold is pulled forward by 5 basis points. At 1,000x leverage, margin should theoretically survive a 0.1% move, but in practice liquidation happens at roughly 0.052%, wiping out the full margin.
- Profits face a 0.2 basis point dead zone and then an asymmetric impact discount. The smaller the move, the harsher the haircut. Under launch parameters, a BTC winner can receive at most 90% of raw profit. On a 1% move, the payout is about 88%. On a 0.1% move, it falls to about 74%.
- The remaining profit is then charged the 2% fee.
The portion shaved off is not paid to any separate party. It stays in the pool and, once the pool is full, can also overflow to stakers.
IOSG gave a simple example. A trader using 100 USDC on a 1,000x BTC position loses the full 100 USDC if price moves 5.2 basis points against them. If price moves 5 basis points in their favor, fair value profit would be 50 USDC, but the actual payout is only 30.4 USDC. The report says no parameter changes had been disclosed since launch.
Who controls the switches
Opening, closing, and staking all pass through Papertrade’s relay. Withdrawals do not. Users can pull funds directly at any time. A 2-of-3 multisig can pause new positions, delist markets, change position caps, minimum margin, and minimum order size, and also adjust impact curves and fee parameters. Contract upgrades are subject to a seven-day timelock.
IOSG also notes that relay ordering is adaptive and favors larger orders. Outside users cannot audit that process, and both the relay and liquidation keeper are run by the team.
How much real money sits under the $1.361 trillion volume figure
IOSG breaks the accounting down layer by layer using data through Oct. 19 at 10:00 UTC:
- $1.361 trillion was the headline volume figure, likely counting both opens and closes.
- Open interest stood at $529 million, backed by $10.7 million in margin, implying average leverage of about 50x. On day one, average leverage was about 160x.
- Actual deposits totaled $335 million from roughly 23,000 addresses. Withdrawals reached $271 million. Locked margin peaked at $58 million on the first day.
- Losing closes totaled $249 million. That is the layer where money actually changed hands.
- Net trader losses were $63.2 million, the only layer that can ultimately be shared with stakers.
IOSG calculates that net losses amounted to about 0.46 basis points of the headline volume. Developer fee income was about $4.5 million.
Where the $249 million in losing closes ended up
The report says the cumulative $249 million from losing closes flowed to four destinations:
- $185 million, or 75%, paid profitable positions, much of it to the opposite leg of offsetting trades.
- $54.1 million, or 22%, went to stakers.
- $4.7 million remained in the LP pool, just below the cap.
- About $4.5 million, or 2%, went to developers.
After subtracting what winners received, net trader losses were $63.2 million. Of that amount, 86% went to stakers.
PAPER ownership is concentrated, and holders are mostly the users
At the time of the report, 16,198 wallets held PAPER. Of those, 13,291 had at least 1,000 tokens, enough to meet the staking threshold. Ownership was highly concentrated:
- The top 10 wallets held 15%.
- The top 100 held 52%.
- The top 1,000 held 88%.
Those same top 1,000 wallets accounted for 81% of all losses among losing wallets and collected 91% of staking distributions.
IOSG estimates that holders lost an average of $0.0073 per PAPER mined. After distributions, that net cost fell to $0.0016. At the para:PAPER price of $0.0243, 97% of supply was in profit after accounting for distributions.
On an aggregate basis, traders lost $63.2 million, got back $54.1 million in cash distributions, and still held PAPER valued at $211 million using the perpetual market price. IOSG adds an obvious caveat: that valuation becomes real only if someone is willing to buy, and the token itself still cannot be traded spot.
The treasury is not the same thing as the LP pool
IOSG makes a point of separating the protocol treasury from the house capital. The Exchange contract held a total of $63.1 million in USDC, broken down as follows:
- About $47.6 million in trader free balances.
- $10.7 million in locked margin.
- $4.7 million in the LP pool.
- About $100,000 in unswept developer fees.
Only the LP pool belongs to the house side, and it represented about 7% of the treasury. The report says the treasury fell from $138 million to around $60 million during the first two days, then stayed between $58 million and $69 million. Since Oct. 12, the LP pool itself has remained between $4.3 million and $5.2 million, while daily deposits and withdrawals broadly offset each other, ranging from $5 million to $26 million on each side.
Daily losses changed sharply on Oct. 17
Papertrade’s loss profile moved through several phases:
- On day one, losing closes reached $75 million and net losses were $28.4 million.
- On Oct. 11 and Oct. 12, gross losses were about $20 million per day and net losses were about $4 million per day.
- During the second wave, gross losses rose to $27 million on Oct. 14 and $41 million on Oct. 15. From Oct. 13 through Oct. 16, daily net losses ranged from $4.5 million to $7.4 million.
- On Oct. 17, activity dropped sharply. Gross losses fell to $6 million and net losses to $700,000.
- On Oct. 18, gross losses recovered to $11.9 million and net losses to $2.2 million, with most of that increase coming after para:PAPER launched.
How staking distributions evolved
The LP pool first hit the $5 million cap about 70 minutes after launch. After an overflow event on Oct. 11 at 15:45, the pool spent much of the next half day below the cap. It moved back above the threshold on Oct. 12 and then stayed pinned near the cap through Oct. 16 as net losses kept refilling it.
Daily distributions to stakers were:
- $3.6 million on Oct. 12
- $4.2 million on Oct. 13
- $5.4 million on Oct. 14
- $6.7 million on Oct. 15
- $5 million on Oct. 16
- $800,000 on Oct. 17
- $2.1 million on Oct. 18
- $70,000 during the first 10 hours of Oct. 19
IOSG says the unresolved cap increase matters. If the cap is truly raised to $10 million, the pool would need another roughly $5.3 million in net losses before overflow resumes. At the pace seen from Oct. 17 to Oct. 19, that could mean four to five days without staking overflow.
Now that PAPER has a price, yields can be compared directly
IOSG estimates that mining 1,000 PAPER through direct losses now costs about $91, versus $10 at launch. Traders using offsetting positions lose only about 13.7% of the accounting loss, putting their cost near $12.5 per 1,000 PAPER. The perpetual market, by contrast, was valuing 1,000 PAPER at about $24.3.
Over the most recent 24 hours, annualized cash distributions worked out to about $0.086 per PAPER. At the perpetual price of $0.0243, that implied a 352% annualized yield. Measured against the direct-loss mining cost, the figure was about 94%.
Over the most recent seven days, including the tail end of the second wave, annualized distributions came to about $0.197 per PAPER. At the perpetual price, that implied 812%. IOSG says the gap suggests the market is pricing in a decline in future revenue, with the perpetual roughly equal to about 100 days of the latest daily distributions or 45 days of the latest weekly pace.
How long until users break even
If only cash distributions are counted, no cohort had broken even. Users who lost money on day one had recovered about 0.58x. Every cohort after Oct. 11 was at 0.15x or lower.
Including PAPER at the perpetual market price changes the picture. Day-one users were at 2.2x, and Oct. 11 users were around 1.0x. Users who mined through direct losses after Oct. 12 were still below breakeven, ranging from 0.83x down to 0.27x.
For offsetting traders, the breakeven line was about 0.14x, and every cohort had crossed it. IOSG says that at around $0.024, the cheapest mining route had become profitable again.
Activity tracked mining returns closely
IOSG found that Papertrade’s activity moved almost in lockstep with mining economics. Hourly volume averaged:
- $56 billion during the first 10 hours
- $7.5 billion from Oct. 11 to Oct. 12
- $3.6 billion from Oct. 13 to Oct. 16
- $2.3 billion on Oct. 17
Each turn lined up with a change in mining incentives. The second wave arrived as the mining rate fell from about 26 to 13 and the market expected the cap to be raised. The drop on Oct. 17 came on the same day the cap was supposed to double. On Oct. 18, volume picked up again once the perpetual price moved above mining cost.
Net take per dollar of volume also shifted: 0.50 basis points on day one, 0.21 to 0.34 basis points on Oct. 11 and Oct. 12, 0.61 to 0.76 basis points from Oct. 13 to Oct. 15, 0.13 basis points on Oct. 17, and 0.37 basis points on Oct. 18.
IOSG says that pattern fits the offsetting-trade mechanism. In a paired trade, one leg fully loses, while the winning leg is still haircut. The more aggressively users churn volume, the more value remains behind per dollar traded.
What exactly is para:PAPER on Hyperliquid
para:PAPER is a perpetual market deployed by Paragon on Hyperliquid under the HIP-3 framework. Paragon’s dex name is para. IOSG says the market was not launched by Papertrade and was not launched by Hyperliquid itself. Paragon spent 570.98 HYPE, worth about $45,000, in the HIP-3 auction to secure the PAPER ticker.
This is a pre-launch market with isolated margin and up to 3x leverage. It is expected to convert into a standard perpetual later. Its oracle is an 8-hour EMA of its own marked price, seeded from Paragon’s chosen reference price of $0.012.
There is no direct connection between para:PAPER and Papertrade. PAPER cannot be transferred, nobody can deliver it, and there is no spot market to arbitrage against.
Price action after launch
para:PAPER opened on Oct. 18 at 11:00 UTC with about $30,000 in open interest. For the first hour it sat at the $0.012 reference price, close to the $0.0125 cost of mining through offsetting trades.
Then it moved quickly. By 13:00 UTC it had reached $0.023. During that hour it printed a high of $0.0352. By 19:00 UTC it had fallen to a low of $0.0198, then traded around $0.0243 afterward.
Twenty-four-hour volume reached $13.9 million, or 70% of all Paragon volume. Open interest stood at 203.5 million PAPER, worth about $5 million. Funding was close to zero.
How the perpetual price fed back into mining
IOSG says that with PAPER trading around $0.024, users mining at roughly $0.0125 through offsetting trades were seeing a market price almost twice their cost. That made mining attractive again.
In the 24 hours before para:PAPER launched, gross losses were running at about $300,000 per hour. In the 11 hours after launch, that pace rose to about $800,000 per hour. Stakers received $800,000 on Oct. 17 and $2.1 million on Oct. 18. By Oct. 19, the pace had cooled back to about $350,000 per hour.
The arbitrage cannot be fully closed. A user can mine PAPER cheaply and short the perpetual, but para:PAPER had only about $5 million in open interest, allowed only 3x leverage, and can never physically settle. IOSG also found little evidence that holders were hedging there. Among the top 300 holders, who controlled 71% of supply, only six wallets had opened shorts on para:PAPER, totaling 20 million PAPER, or 0.3% of their holdings. Another five wallets were long.
What the para:PAPER price means
IOSG says this is the first market-based number that assigns a value to PAPER, and that number is roughly twice the cost of mining through offsetting trades.
But the market is thin and self-referential. The oracle is the market’s own EMA. Leverage is capped at 3x. About $5 million in open interest is being used to price a token with a market value of roughly $211 million.
It also creates a new feedback loop. The higher the perpetual price, the more attractive mining becomes. More mining creates more losses and more staking distributions. Those distributions can then support the price. IOSG notes that the loop weakens over time because H keeps rising, which means each additional dollar of loss mints fewer PAPER.
The bullish case IOSG sees
IOSG says the design has, at minimum, worked as advertised so far. The protocol raised no capital, kept operating under its stated rules for nine days, and absorbed a roughly $2.5 million drawdown on the first day. The feared winner queue never appeared in snapshots taken every five minutes, and the fair launch can be verified on-chain.
The stronger bullish argument is structural. Every rule leans in the same direction: losses are full, profits are discounted, and liquidation comes early. If trading remains active, traders as a group are more likely to lose than win, and the pool tends to refill itself. IOSG says that over the first 212 hours, traders were net profitable in only 41 hours, totaling $3.7 million. In the other 171 hours, they were net losers.
Viewed another way, Papertrade is a form of liquidity that grows out of trading itself. Other perpetual launch models usually need upfront capital. Order-book venues need market makers. Oracle-priced pools such as GMX’s GLP or Jupiter’s JLP need depositors willing to take the other side and earn a return. Launching a HIP-3 market on Hyperliquid requires staking 500,000 HYPE and then sourcing market makers separately.
Papertrade’s pool started at zero and hit the $5 million cap in about 70 minutes. Since Oct. 12, it has never been more than $800,000 below that cap. There was no seed capital and no LP incentive program.
IOSG goes one step further. If deployment tools are built and each market can have its own isolated pool, the model could become a template for permissionless perpetual launches. The documentation already says any Hyperliquid perpetual can be listed, including HIP-3 markets.
Still, IOSG says the ceiling is the price source. The report notes that 0x2025 spent only about $52,000 in fees to push ETH by 0.12%. In thinner HIP-3 markets, the cost would be lower. Any permissionless version would need position caps tied to the actual depth of the oracle source.
The risks IOSG highlights
IOSG lists several areas where the model could break down.
First, PAPER represents future losses, and those losses arrive in waves. From Oct. 12 to Oct. 16, stakers received $24.9 million. On Oct. 17, they received only $800,000. IOSG says Oct. 17 was the only day with no clear mining incentive, and staking income fell to about one-sixth of the prior day.
Second, mining gets more expensive over time. Each $1 of loss now mints 10.9 PAPER, down from 100 at launch, and 69% of the estimated supply cap has already been issued. Offsetting trades expand supply without adding fresh cash to the LP pool. Once PAPER becomes transferable, IOSG says buying it directly may be cheaper than losing money to mine it for anyone other than offsetting traders.
Third, the oracle uses a single midpoint from the best bid and ask. There is no TWAP and no deviation circuit breaker. IOSG cites Limxn6 as saying that if a paired trade meets a price gap, the trader is effectively handed a free straddle, with the tail risk borne by the LP pool.
Fourth, the relay can censor. It sorts by order size, cannot be externally audited, and both the relay and liquidation keeper are run by the team.
Fifth, the main price signal now shaping the story, para:PAPER, has no anchor. It can change mining incentives and market narrative even if nothing changes inside Papertrade itself. At the same time, the team-announced cap increase has not been executed, so stakers cannot rely on announcements alone to forecast income.
The pool is safer than it was on day one, but not immune
IOSG says the pool is in a stronger position than it was at launch. At the time of the report, open interest was $529 million, net long exposure was $64 million, and the pool held $4.7 million. BTC and ETH would need to rise about 3.7% from the average entry prices of those positions before liabilities to winners exceeded the pool plus losing traders’ margin.
On day one, that threshold was only 0.7%. The closest point over the past week was 2.2% on Oct. 15. During the same period, the largest one-hour swing in BTC and ETH was 4.3%.
IOSG’s conclusion and what it is watching next
IOSG concludes that Papertrade has largely delivered on its mechanical promises. The house raised no money, remained solvent over the first nine days, never produced a winner queue, and sent 86% of net trader losses back to stakers, who were mostly the same wallets that had lost money in the first place.
As a yield product, PAPER represents a claim on overflow that appears in bursts whenever mining remains attractive, plus a 1% share of fees. It now has a market reference through the thin para:PAPER perpetual on Hyperliquid, trading around $0.024, roughly double the cost of mining through offsetting trades.
IOSG says that as long as this spread remains, the perpetual market is effectively paying users to keep losing money and feeding those losses back to stakers. If the spread disappears, income falls back to whatever pure 1,000x gambling can leave behind. Oct. 17 is the only calm sample so far, and stakers received just $800,000 that day.
The report ends with several things to watch next:
- When PAPER becomes transferable. It is listed as phase four on the roadmap, but no timeline has been given. A spot market would anchor the perpetual and give miners a way to sell.
- Whether the $10 million cap is actually implemented. If it is, overflow distributions could stop for several days.
- Whether new markets are added. The documentation says any Hyperliquid perpetual can be listed, and new markets would mean new sources of losses.
- Whether perpetual open interest grows. About $5 million is not enough for meaningful hedging. If it rises, holders may short more actively.
- The mining rate. It stood at 10.9 in the report. IOSG estimates that every additional $100 million in gross losses would cut the mining rate by more than another third, meaning PAPER’s price would need to keep rising for mining to stay attractive.