Author: Nancy, PANews
Brother Maji has found the project that suits him best, because trading losses can also be mined.
This meme spreading through the community is exactly Papertrade, a perpetual contract protocol that has been online for only ten days. It quickly went viral with its "losses as mining" mechanism and has become a highly watched on-chain experiment in the DeFi market recently with up to 1,000x leverage, with protocol revenue once ranking among the top across the entire network.
However, behind the impressive data, its protocol revenue is highly dependent on trader losses, user activity and capital inflows have also begun to slow, and the postponement of the PAPER token transfer plan has further triggered community controversy.
To prevent short-selling attacks, PAPER transfers are postponed, and pre-market contracts are delisted by multiple platforms
Right now, Papertrade is mired in community controversy due to adjustments to PAPER's token mechanism.
On October 20, Papertrade announced that it would upgrade the protocol contract, temporarily not open PAPER transfer functionality, introduce time-based fee rates targeting high-frequency arbitrage bot strategies, and adjust the token minting mechanism to prevent "mint straddle attacks" and gradually dilute early holders.
Regarding this series of adjustments, Papertrade explained that the protocol is a relatively complex financial primitive with high risk management difficulty, and PAPER's degree of binding to the protocol's economic model is also higher than most protocol tokens, so stricter risk control measures are needed. If PAPER transfers were opened, external perpetual contract markets could short the "liquidity pool solvency," and the target amount for manipulation attacks would rise from the size of the liquidity pool to "liquidity pool + PAPER short exposure," while external markets are outside their control. The official example stated that assuming the liquidity pool size is $10 million, if an attacker needed to invest $15 million to carry out an attack by manipulating the price of Bitcoin or Ethereum, this would not be feasible because they would ultimately only lose money. However, if the attacker could also establish a $10 million PAPER short position, then the situation would be completely different.
But this news caused community dissatisfaction. Many users pointed out that the official team had previously signaled the expectation that PAPER transfers would open, and some participants had invested funds and trading costs to participate in mining based on this expectation. Now that the transfer function is postponed, the PAPER already mined cannot be freely traded and can only become a single-player coin.
For users who obtain PAPER through trading losses, the temporary inability to transfer tokens also means that direct monetization channels are restricted. At present, the relatively clear profit path is to stake PAPER and receive USDC dividends, but this portion of returns will also be diluted by the increase in token supply, and whether the protocol's revenue model can be sustained also remains uncertain.
Some users also expressed understanding. In their view, restricting token transfers and adjusting the issuance mechanism, although weakening the advantage of early miners and potentially constituting bearish news in the short term, from the perspective of the protocol's long-term operation, this move helps reduce potential manipulation risks and is a necessary risk control measure.
Affected by this news, PAPER pre-market contracts were delisted by multiple platforms. Aster announced the delisting of PAPER pre-market perpetual contracts and adjusted the relevant market to reduce-only mode. The platform stated that this move was a preventive measure aimed at managing market risk and maintaining orderly trading. It is worth noting that Aster completed both the listing and delisting of PAPER pre-market perpetual contracts on the same day. Crypto perpetual index trading platform Paragon also announced the suspension of PAPER trading and completed settlement, explaining that PAPER was temporarily not open for transfer, and the market had lost the spot price basis for future price convergence.
Over $60 million captured in ten days, with more than 80% of revenue coming from trader losses
Built on HyperEVM, Papertrade is a recently high-profile on-chain protocol. With up to 1,000x leverage and the ability to turn losers into protocol shareholders, Papertrade quickly broke out with this controversial innovative mechanism and attracted attention from many airdrop hunters.
Unlike traditional perpetual contract exchanges, Papertrade does not use order book matching and has no external market makers. Instead, the protocol's own USDC liquidity pool directly takes on user trades. Its trading price references the midpoint between the best bid and best ask in the Hyperliquid order book, and currently only supports BTC and ETH.
More unusually, Papertrade adopts a zero initial liquidity model and does not accept external capital injections from teams, VCs, and others. The liquidity pool mainly accumulates through trader losses. When closing a profitable position, the principal is returned immediately, and the profit is paid by the liquidity pool; if funds are insufficient, the unpaid portion will be recorded as debt in a queue and repaid in order after subsequent losses replenish liquidity.
To attract traders and drive liquidity pool growth, Papertrade launched PAPER, a token with zero initial supply, using a fair launch mechanism and minting only to traders who close at a loss or are liquidated. In the initial stage, when the liquidity pool size is below $2 million, 100 PAPER can be obtained for every $1 lost, and the minting rate then decreases as the liquidity pool expands. In addition, PAPER holders can also stake tokens to share in the protocol's revenue paid in USDC.
To further lower the trading threshold, Papertrade also adopted a fee model different from traditional exchanges: no fees, spreads, or funding fees are charged for opening positions, and traders do not need to bear Gas costs; when closing a profitable position, the protocol generates revenue through a profit deduction mechanism and a 2% profit fee.
Trading losses usually mean asset shrinkage, but Papertrade does the opposite, attempting to turn losses into a way of "mining."
Judging from the data performance after launch, Papertrade's growth momentum is strong. DeFiLlama data shows that since its launch on October 10, Papertrade's cumulative trading volume has reached $1.4 trillion, with more than 23,000 accounts. In just ten days, the protocol's cumulative revenue was about $62.45 million, and revenue over the past week reached $30.56 million, second only to Circle and ranking third across the entire network. At the same time, $57.95 million of cumulative revenue was distributed to PAPER token stakers, accounting for 92.7% of total revenue.
However, behind the impressive data, its protocol revenue does not mainly come from regular trading service fees, but is highly dependent on sustained net losses by traders, with the share of protocol fees actually extracted from profitable position closures being very low. Specifically, Papertrade's revenue mainly comes from LP surplus, trading fees, and liquidation fees. Among them, LP surplus was about $52.72 million, accounting for 84%; trading fees were about $8.36 million, accounting for 13%; liquidation fees were about $1.37 million, accounting for 2%.
This shows that Papertrade's current protocol revenue contains considerable "water."
User and capital growth momentum slows, most large holders remain in loss
Now, Papertrade's market heat has begun to cool, and both user growth and capital inflows have shown signs of slowing.
DeFiLlama data shows that as of October 20, Papertrade had about 7,432 active addresses, accounting for only 31.4% of total addresses. Although the number of active addresses has recently remained at a relatively stable level, it has fallen about 42% from its peak. Daily new addresses also continue to decline, with the latest figure only 9.6% of the peak period, indicating a clear slowdown in new user growth.
Inflows on the capital side are also slowing. PaperDash data shows that Papertrade's cumulative deposits have exceeded $340 million, with a single-day deposit peak once approaching $150 million. But recently, capital inflow momentum has clearly weakened, with a cumulative net outflow of about $11.35 million over the past 7 days, including a single-day net outflow of about $7.46 million on October 20.
Judging from traders' actual profit and loss, losses as mining has not changed the reality that most participants bear trading losses. PaperDash data shows that as of October 20, traders' cumulative losses were about $28.1 million, and even after including staking rewards, cumulative losses were about $2.98 million. Stakers had received about $56.33 million in dividends cumulatively, with only about $2.28 million in the most recent 24 hours, just 4% of the total.
According to Lookonchain statistics, among the 25 traders with the largest losses on Papertrade, 21 were still in loss after including USDC rewards, and only 4 were profitable. These 25 traders generated a total trading volume of $111.5 billion, received 2.06 billion PAPER, accounting for 23.4% of the token's total supply; at the same time, they had claimed $11.61 million in USDC rewards, accounting for 20.6% of all USDC rewards. High-leverage player "Brother Maji" Huang Licheng is a typical loss case among them, with cumulative trading volume of $1.56 billion, realized losses of $833,000, ranking 10th on the loss leaderboard. After receiving an airdrop offset of 437,000 PAPER, his account was still down $424,000.Currently, PAPER's minting rate is also weakening. At present, each $1 of loss can only mint about 10.3 PAPER, a decline of about 90% from 100 at launch. This means the high token incentives enjoyed by early participants are shrinking. But for now, the liquidity pool balance is about $4.96 million, and net of unrealized losses on open positions, the net value is close to $4.09 million, with zero queued liabilities awaiting payment.
It should be noted that on Papertrade, the scale of long Bitcoin positions is significantly higher than that of shorts. If Bitcoin continues to rise, long traders may take profits in a concentrated manner, and the liquidity pool will face greater pressure to pay out profits. The safety buffer the protocol keeps in the pool is designed to be limited to about $5 million. Once profit payout demand exceeds available funds, the liquidity pool may be rapidly depleted and trigger a payout queue. By contrast, if the market falls, losses on longs will replenish liquidity for the pool, and short-term solvency pressure will be relatively smaller.
For Papertrade, turning trader losses into a starting point for growth is not difficult. The real test is whether, after short-term hype gradually fades and incentive mechanisms continue to shrink, it can still maintain the stable operation of the liquidity pool and user confidence. Perhaps this is the key to testing whether this on-chain experiment can go further.