Papertrade, a perpetuals platform in the Hyperliquid ecosystem, has attracted users quickly with two features: leverage of up to 1000x and a mechanism that gives traders PAPER tokens when they realize losses. As early participants accumulated large PAPER positions, attention shifted to a harder question: whether smaller, later entrants can still make money from the system.
Four Pillars head of research 100y recently examined that question in a post titled, roughly, “Can small latecomers still make money on Papertrade?” His argument was direct. PAPER has no fixed supply cap, early whales may already have earned back several times their initial trading losses through staking rewards, and later participants face both ongoing dilution and a need for the platform to maintain real trading demand over the long run.
No supply cap means later entrants may receive a smaller share
One of the main differences between Papertrade and a standard perpetual futures venue is how its liquidity pool is funded. The LP does not take direct outside deposits. Instead, capital builds up through trader losses. When traders lose money, those losses flow into the LP, while the traders receive PAPER tokens according to a set ratio.
Once LP funds pass the $5 million distribution threshold, newly distributable revenue flows to PAPER stakers. Stakers can also share part of the trading settlement fees. In that structure, PAPER functions less like a plain governance token and more like a token tied to future protocol revenue.
100y said the central weakness is that PAPER has no hard cap. Supply can keep expanding as traders continue to lose. In the early stage, Papertrade used a rule under which every $1 of eligible trading losses minted 100 PAPER. The issuance ratio declines as LP revenue grows, but issuance does not stop.
That gives early participants a clear advantage. They can accumulate large amounts of PAPER at relatively low cost and secure a larger share of staking rewards while total supply is still low. Later users may take on the same scale of trading losses and still receive fewer tokens, leaving them with a much smaller claim on future distributions than early whales.
Researchers say early large farmers may already be well ahead
100y said some early large PAPER farmers appear to have already recovered several times their initial trading losses through staking rewards. That creates a distribution question inside the model: if early whales already control large PAPER balances and continue to collect protocol revenue, how much room is left for retail users who arrive later.
Blockworks Research analyst shaunda devens reached a similar conclusion in separate work on PAPER’s early return profile. The study used Monte Carlo simulations, assuming daily trading volume of $100 million and incorporating specific trader behavior, profit haircuts, and the token issuance mechanism.
Under a particular hedged farming strategy, the results showed that a participant selling PAPER in the third month could see total returns of 3.8x the initial cost. When assumed daily volume rose to $1 billion, simulated returns climbed as high as 8.8x.
The picture looked much weaker for users simply taking intentional losses to farm PAPER. Under the $100 million daily volume assumption, if a participant relied only on staking distributions to recover costs, the model estimated that break-even could take about 33 months.
The research also said early PAPER derived value from distribution rights that had not yet been heavily diluted by new issuance. As more traders receive newly minted tokens, however, the income share attached to existing holdings continues to fall.
Questions over the platform’s trading appeal
For 100y, the deeper issue is not whether early token incentives can attract traders. It is whether the platform remains competitive once those incentives fade. From a trader’s perspective, he argued, Papertrade may not be more attractive than other decentralized perpetual exchanges.
The reason is the protocol’s asymmetric haircut and its win fee on profitable trades. Traders absorb real losses when positions move against them. When they win, the amount they can actually keep is reduced by the haircut and fees.
One example cited from shaunda devens’ research used a trader posting $100 in margin and generating $100 in theoretical gross profit. The profit the trader could actually retain varied depending on leverage and the size of the price move.
So even when a trader correctly calls the market, the full theoretical gain does not end up in the trader’s hands. The remaining value becomes part of LP and protocol-related revenue. In 100y’s view, that gives the LP a structural advantage over ordinary traders. If traders keep taking losses while profitable positions are also clipped, capital is statistically more likely to concentrate in the protocol’s liquidity pool over time.
That leads to a practical question. If other perpetual DEXs offer more reasonable trading terms, why would traders stay on Papertrade for the long term?
1000x leverage is the main draw, and possibly the engine of volume
Even with those doubts, 100y said Papertrade still has one competitive feature that is hard to ignore: leverage of up to 1000x. For traders with a high appetite for risk, that alone may be enough to keep activity going, even if the platform’s haircut mechanism makes the risk-reward profile less attractive than on more conventional perpetual venues.
At 1000x leverage, very small moves in the underlying asset can produce large changes in margin. Even when price moves in the trader’s favor, realized profit is still adjusted by the protocol. On the downside, an adverse move of about 0.05% can trigger liquidation.
For Papertrade, that kind of high-leverage behavior can keep generating trading losses, feeding the LP and minting new PAPER at the same time. It also means future protocol revenue and token distributions depend heavily on traders continuing to accept very high risk. 100y said the real test is not whether the game theory works on paper, but whether the platform can still attract enough organic trading volume after the early farming incentives fade.
The core tension: the same trading activity can drive revenue and inflation
Papertrade’s token model contains a built-in contradiction. For PAPER stakers, more trading activity can mean more protocol revenue. But more trader losses also create more PAPER supply. Revenue growth and token inflation may come from the same stream of activity.
If trading volume keeps growing quickly, new revenue may offset dilution and preserve attractive returns for stakers. If early farmers begin to leave and market activity falls, the balance can reverse. Whales would still hold large amounts of already minted PAPER, while later retail users would be left sharing a smaller pool of new revenue as ongoing issuance keeps diluting distributions.
The issue becomes sharper if much of the volume comes from hedged farming rather than genuine directional demand. shaunda devens said delta-neutral strategies usually involve taking opposite positions at the same time. The losing side sends funds into the LP, while the winning side draws funds out. Net contribution to the liquidity pool may be limited, yet new PAPER is still created, adding inflation pressure.
That means headline trading volume and account counts alone may not be enough to judge whether the model is healthy.
Price reference design also faces arbitrage allegations
Beyond inflation and staking distribution concerns, Papertrade is also facing criticism over a more direct trading-mechanism risk. X user Boblob said the platform appears to be exposed to an arbitrage strategy involving price manipulation by two wallets.
According to his description, the wallets used roughly $20 million in trades to move ETH prices on Hyperliquid by around 10 to 20 basis points, or 0.1% to 0.2%, while building ETH long positions on Papertrade with notional value in the nine figures, at least more than $100 million.
The key point in that allegation is that Papertrade does not execute directly through the Hyperliquid order book. Instead, it uses Hyperliquid market quotes as the settlement reference for synthetic positions. If a large trader can move Hyperliquid prices for a short period with relatively limited capital, then use Papertrade’s very high leverage to magnify gains on a much larger synthetic position, that could create a cross-platform price-manipulation arbitrage trade.
The article gave a simple example. If a trader opens a $100 million notional ETH long on Papertrade and the reference settlement price rises by 0.1% to 0.2%, theoretical gross profit would reach $100,000 to $200,000 before profit haircuts, fees, and the trading costs required to move prices on Hyperliquid are deducted.
Boblob said this points to a major flaw in the current protocol design and argued that the issue would need to be fixed quickly if Papertrade wants to sustain long-term operations.
The report added that this differs from an earlier arbitrage theory raised by Ray involving price gaps and simultaneous long-short positioning. Boblob’s description focused on influencing an external market price and extracting gains from a larger synthetic position. The mechanics differ, but both arguments point to the same structural risk: synthetic exposure on Papertrade may be much larger than the amount of capital needed to influence its reference price.
The debate around Papertrade now centers on a simple divide. Early incentives may have created strong returns for the first wave of participants, but with ongoing PAPER issuance, revenue distribution tilted toward early holders, disputed trading conditions, and questions over the platform’s price reference design, it remains unclear whether later entrants can expect the same outcome.