Winners queue up to receive money, losers face liquidation to get airdrops: Understanding "losing money is mining" in Papertrade in one article

Author: HONKAYO

Compiled by: Deep Tide TechFlow

Deep Tide Guide: Papertrade bets on replacing LP with "loser losses," launching a perpetual exchange with up to 1000x leverage from a cold start: winners' margins are refunded instantly, and unredeemable profits turn into public debt, replenished by later losers in exchange for PAPER, which is tied to the platform's future earnings. The product's real hard constraint is the payout queue— it can start without external liquidity, but still needs sufficient loss flow to timely pay winners; deposits are set to open on October 8, and trading is scheduled to start on October 10. Before the public contracts and audits are finalized, this model still needs to undergo real volatility testing.

TL;DR

1000x leverage, no LP, and a queue that pays winners with future traders' losses. Papertrade is attempting to launch a perpetual exchange from a cold start.

The protocol will immediately refund the winner's margin, but any profits it cannot temporarily redeem will turn into a public debt. Losing traders replenish the cash pool and receive PAPER—a token tied to the platform's future earnings.

This makes the payout queue the core constraint of the product. Papertrade can start without external liquidity, but still needs sufficient loss flow to pay winners on time.

This research report is based on information available as of October 3, 2026. Deposits are planned to open on October 8, and trading is set to begin on October 10.

How a Papertrade Position Works

Papertrade claims to be a fully on-chain perpetual exchange, with up to 1000x leverage, no funding rates, no slippage, and liquidity pools that can grow from zero. These claims come from the project's initial announcement.

From an economic structure perspective, it resembles a casino rather than a typical exchange.

On Hyperliquid or Lighter, long and short positions are matched through an order book. Market makers provide liquidity, and traders pay spreads, fees, and funding rates. Papertrade does not match traders against each other. The protocol itself takes on the counterparty for every position.

The reference price is provided by Hyperliquid. Papertrade uses the midpoint of its best bid and ask for opening and closing prices, but never hedges on that side. It only records positions, follows the reference price, and settles profits and losses from its own cash pool.

The initial market is limited to BTC and ETH. Blurr explained the reason in a founder interview: even the most liquid assets are difficult to manage at 1000x. Faster and better-performing coins might allow traders to withdraw more money from the protocol than what is recovered through liquidation. He mentioned that SOL might reach close to 300x in the future, but that is just a potential future target, not a confirmed market.

Positions are per position. Traders cannot use full margin, cannot add margin after opening a position, and cannot close only part of it. The current document sets the single user limit at 10 million dollars, while earlier interviews used 20 million dollars as an example. The final limit will be based on the online contract settings.

Leverage is best understood as an integer. Invest 100 dollars, open 1000x, and the nominal value of the position is 100,000 dollars. A price fluctuation of 0.10% results in a profit or loss of 100 dollars, exactly equal to the initial margin. Papertrade expects to liquidate earlier—around a 0.05% fluctuation unfavorable to traders. A few price movements can determine a trade.

No funding fees are paid. Blurr believes this is feasible for BTC and ETH because spot and perpetual prices are usually very close. Stocks, gold, and other markets with overnight or weekend closures are more challenging. He directly discussed this limitation in the interview (19:05).

Unclear Aspects of "Zero Slippage"

Papertrade does not have a local order book, so large orders do not consume multiple price levels layer by layer. Each trade uses the midpoint of Hyperliquid's best bid and ask. This is what the project refers to as zero slippage, although the final payout may still be lower than the original profit.

Profitable trades will go through a payout curve. Small fluctuations incur heavier deductions, while large fluctuations are closer to the full original profit. Without this curve, traders could open huge positions and repeatedly extract money from tiny changes in the reference price.

A trade might show an original profit of 1000 dollars, but after going through the curve, only 600 dollars are paid out. These are just indicative numbers; actual payouts are determined by online parameters. Blurr mentioned that the team borrowed heavily from Rollbit's mathematical model (23:27).

Therefore, "zero slippage" applies to opening and closing price setting, not the final amount received by traders. Before confirmation, the application needs to display the reference price, original profit, post-curve profit, and any queue delays.

Fees are not calculated based on position size. In the interview, Blurr described a charge equivalent to 1% of profit and loss (27:15). The contract still needs to specify the exact calculation method and its order relative to the payout curve.

Clarifying the Queue Mechanism in Layman's Terms

Starting from an empty cash pool.

A trader deposits 100 dollars and makes a profit of 100 dollars when closing the position. Papertrade can refund the original margin but does not yet have the additional 100 dollars. The unpaid profit enters the queue.

The next trader loses 40 dollars, so the first winner receives 40 dollars first, leaving them with a 60 dollar debt. Another loss of 60 dollars clears this debt. After that, subsequent losses begin to accumulate a positive balance for the protocol.

If a second winner arrives before the first debt is cleared, they wait behind in the queue. The queue operates on a first-come, first-served basis.

The official risk document allows the cash pool to be negative. Blurr provided a larger example in the interview: if there are 5 million dollars available in the pool but 6 million dollars in profits, the trader first takes 5 million dollars and then waits for the last 1 million dollars.

Liquidity risk lies here. Waiting too long can push traders away, and pushing them away also removes the loss flow needed to repay queued debts. The team views the queue as an early safety net and states that the ideal situation is that it hardly needs to be used (23:04).

PAPER: Turning Losses into Ownership

PAPER starts with zero supply. The project claims there is no pre-mining, no team or VC shares, no airdrops, and no vesting unlocks. Tokens are only minted when users incur trading losses or are liquidated.

The current document states: as long as the cash balance tracked by the protocol remains below 2 million dollars, 100 PAPER will be minted for every 1 dollar lost. Losing 100 dollars will mint 10,000 PAPER.

After exceeding 2 million dollars, the minting curve begins to tighten. Its high watermark H tracks cumulative LP earnings above that threshold. The marginal minting rate for each qualifying loss dollar is: 100 × (120M / (120M + H))² PAPER.

The curve is extremely biased towards the earliest farmers. When H = 50 million dollars, it is about 50 PAPER per dollar; at 120 million dollars, it drops to 25—by this time, half of the 12 billion tail has been minted. At 260 million dollars, it is about 10, at 420 million dollars it is 5, and at 1.08 billion dollars it is 1. By then, the tail has released 10.8 billion PAPER.

12 billion is not a hard cap. It is merely the mathematical limit of the diminishing tail when the high watermark continues to rise. When the tracked LP falls back below 2 million dollars, the flat 100 PAPER/dollar rate will return, thus opening the path to unlimited minting (28:49).

The interview had inconsistent exact numbers: Blurr oscillated between 100 and 1000 PAPER per dollar (27:53). The current document states 100, which is a more usable working number before the contract is made public.

PAPER can be staked immediately. Stakers are expected to receive most of the house fees and cash exceeding the protocol's target balance. Blurr set the initial target at around 5 million dollars: if the pool reaches 6 million dollars and the target remains unchanged, the additional 1 million dollars can go to stakers (27:28). The protocol will leave enough revenue to cover trading costs.

When launched, PAPER will not be freely tradable. Users can mint and stake, but transfer arrangements are planned for a later phase of the launch plan. Without a market price, the 10,000 PAPER obtained from a 100 dollar loss might be worth 5 dollars, 50 dollars, or even more than the loss itself. No one knows right now.

This uncertainty may drive up early trading. Anyone expecting PAPER to appreciate might deliberately incur losses to farm it. Blurr suggested using proxies to do this and stated that Papertrade is designed to support such behavior (32:49).

Deliberate losses will add liquidity to the pool and help clear the queue, but they will also make demand appear healthier than it actually is. If bots chasing PAPER contribute most of the early trading volume, once the emissions decrease or the token's opening price is weak, activity may collapse.

A pre-launch simulation pointed to a less intuitive farming result. Using real-time BTC and ETH prices, 100x produced the cheapest PAPER in the first snapshot: about 2.55 dollars for every 1000 tokens. Adaptive leverage was 2.81 dollars, 20x was 4.38 dollars, and 1000x was 5.06 dollars. The 3x round was the most expensive, reaching 17.38 dollars.

These are early results, not online product data. Researchers are still testing paired trading and different LP conditions, and fees, payout curves, and liquidation timing may rewrite rankings. However, this snapshot makes one thing very clear: the highest leverage does not automatically equal the cheapest path to farm PAPER.

Early Holder Closed Loop to Watch

Here is a straightforward long-term play. Farm a large amount of PAPER positions while rates are still high and stake them, then introduce more trading activity. Later users contribute cash and fee income, but the tokens obtained through losses are fewer. Once transfers are finally open, early positions can be sold into a market that already has an income story.

The published curve has created this early holder advantage without any hidden quotas. Currently, there is no public evidence that the founders will farm tokens through associated wallets or leave backdoors for themselves. Measurable concerns lie in access: PAPER distribution begins before direct contract access is open, while the project's operators control the order flow. Public code and wallet distribution will show whether the first batch of large shares comes from ordinary users, collaborative farming tokens, or team-associated wallets.

A more aggressive version would allow PAPER to be used as collateral for new positions. Early token positions could become leveraged, and liquidations would push tokens toward the treasury or other large holders. The current documentation does not state that PAPER will be accepted as collateral, so this is a scenario to watch rather than part of the launch design.

The risks borne by various parties are different:

Loss-making traders provide blood to the system and receive PAPER that may never cover their losses.

Winners can reclaim their margin, but profits may take time.

PAPER stakers earn fees and cash exceeding target balances while bearing the risks of dilution and weak trading volume.

Papertrade absorbs all users' merged profits and losses while paying transaction costs and running trade submissions.

PAPER is more like a debt to the dealer rather than an ordinary points token. Its value depends on trading losses, fees, and whether users remain after the early farming token period.

Can the accounts be settled?

An independent PaperTrade-Simulations codebase ran approximately 3.6 million historical high-leverage Hyperliquid trades across 608 scenarios. All 608 maintained solvency, with 81.2% never entering negative territory, and the worst queue touched around $61,974, clearing on the same day. In the model, the cash pool reached a $5 million cap within five days.

The token numbers are equally aggressive: the final PAPER supply reaches 8.63 billion, with simulated staker fees totaling $248.1 million. These results indicate that sufficient loss flow can sustain this design. They do not indicate whether a new venue will attract that kind of traffic or retain it after real users see the queue.

Even the weakest scenario assumes 25% of the selected Hyperliquid activity. Source traders use leverage below 1000x, mixing their trades and erasing much of the herd behavior that occurs when many bet in the same direction. The model also excludes price manipulation, relay delays, liquidation failures, farming bots, and loss after slow payouts.

The dataset is available for external download, but no integrity hash has been published. The codebase has only one submission and cannot be independently reproduced. Stronger follow-ups should lower assumed trading flows, cluster positions on the same side, delay trades, and include attempts to deliberately push reference prices. For now, the model is suitable for testing hypotheses but insufficient to endorse deposits.

Good flywheel vs. bad flywheel

In a healthy version, high leverage pulls traders in, losses build up the cash pool, and staking redirects some income back to PAPER holders. If this return is attractive, farming tokens will continue to supply the cash needed for payouts.

Useful variables include: net trader losses relative to new winning debt. Positive inflows grow the pool; negative inflows extend waiting times and weaken incentives for trading or farming tokens. Headline trading volume can obscure this, as 1000x can magnify a small margin into a huge nominal figure.

The truly important metrics are:

Peak queue liabilities vs. average waiting time;

The proportion of instant payouts in winner profits;

How much cash remains after unpaid debts;

The amount of PAPER minted for every dollar of net retained;

Reusability of traders after their first liquidation;

Fee income after deducting trading costs.

These numbers can separate "cash balance is growing" from "leverage trading volume revolving around a thin layer of money."

The price source itself is part of the risk

Papertrade reads Hyperliquid's public prices rather than running its own signer group. But that order book can be pushed. Attackers can inflate its optimal bid and ask, trading at distorted Papertrade prices, then let the market bounce back. When Papertrade has more money than the cost to push Hyperliquid, the attack is established.

This logic supports the planned $5 million cap: the team hopes to keep the pool below the approximate cost of pushing BTC or ETH order books (20:45). This assumption has not been independently verified.

Stale prices open another door. If HyperEVM pauses while Hyperliquid continues to operate, Papertrade may briefly quote old prices. Traders holding both long and short positions can close the losing side against stale quotes, leaving the profitable side. Blurr discussed freezing or settling the market in such cases (12:21).

At 1000x, even seconds matter. Price sources, trading queues, and liquidation systems must be synchronized; otherwise, delays can rewrite who wins and who pays.

Strict control during the initial launch

Papertrade runs on-chain, but on the first day, users will go through the project's operational infrastructure rather than directly interacting with contracts.

The launch plan is divided into four phases:

1. Deposits open on October 8, trading remains closed.

2. Trading begins on October 10 through the official website and the project's operational relayer.

3. Later, direct contract access will be opened to users, applications, and agents.

4. Builder rewards and PAPER transfers will appear in a later phase.

The relayer submits user trades on-chain, aiming to prevent bots from launching gas wars. Requests will not receive equal priority: liquidations precede closures, closures precede new openings, and larger trades may queue jump over smaller ones (interview). Early users must trust these servers to stay online during chain congestion and fairly execute that order.

Papertrade plans to cover blockchain fees for ordinary users. Small withdrawals may wait until fees decrease, while large positions receive faster service. Emergency controls also allow the team to stop new openings, close markets, adjust limits, and manage relayers. Until direct access is open and these powers are fully documented, the product still relies on the team.

Where the idea came from

This idea emerged more than two years before the September promotion. Blurr said that he and Jez wrote the first paper on the queue system in the summer of 2024 after testing with blackjack and coin tossing (02:45). The Martingaler white paper describes a game where the dealer can start without capital and records unpaid bonuses as liabilities.

By January 2025, Jez was discussing the combination of extreme leverage, smooth entry prices, asymmetric payouts, and casino economics from Rollbit (08:26). He also framed casino tokens as ownership of future cash flows (11:42). In September, he publicly referred to Blurr as a business partner (35:55) and explained why leveraged markets might exhaust collateral before losers produce enough to pay winners (1:23:12). The Papertrade queue is precisely pushing this gap back.

The queue lived into the launch design, but the token changed. The white paper used another set of emission models and discussed buybacks and burns; the current version switched to staking and diminishing rates. Public contracts should clarify which parameters truly go live.

Team

Papertrade was announced as a project by Jez and Blurr.

Jez is Colin Hong. A World Poker Tour profile lists roles at MIT, Morgan Stanley, and as a Venture Partner at Standard Crypto. His public writing and interviews have covered trading, leverage, and crypto market structure over the years.

Blurr is a pseudonym. Most public information about him comes from two long interviews and the white paper. He said he met Jez in New York in 2021 and claimed that Papertrade was built by only two or three people (31:10). This means that contracts, relayers, risk parameters, and emergency responses are all in very few hands.

Funding details have not been disclosed. The claim of a fair launch applies to PAPER distribution; Jez's role at Standard Crypto does not prove that the fund invested in this project.

Competition and distribution

Papertrade is positioned between perpetual exchanges and online casinos. Hyperliquid and Lighter offer deeper markets and instant settlements; Papertrade offers much higher leverage, no funding fees, and no local order book slippage, but the dealer takes the counterparty, and profits may be delayed.

The closest economic counterpart is gTrade, as traders face a shared pool priced according to external markets. The difference lies in the cold start: gTrade requires funded liquidity, while Papertrade turns uncovered profits into debt. Rollbit illustrates that simple extreme leverage trading has an audience. Trade.xyz and other HIP-3 markets address another type of problem—adding assets to Hyperliquid rather than eliminating the need for front-loaded liquidity.

The mechanism is easy to copy. Any sustainable advantage must come from reliable payouts, existing cash in the pool, execution quality, and distribution. Builder code could help by sending 1% of referral trading income to external applications, although direct contract access and third-party integration have not yet launched.

The project already has an audience. The launch video on September 29 surpassed 1 million views on X (post), and the detailed launch post had about 133,000 views and over 1,000 likes (post). This should create a noisy first week. The truly useful demand signals come later: when users have already been liquidated, received PAPER, or queued for profits but still decide to trade again.

What is ready and what is still lacking

Papertrade has detailed documentation, a white paper, and a specific launch plan. However, as of October 2, there is still no official contract address, verified source code, or public codebase. Users cannot verify online fees, token emissions, payout rules, emergency controls, or upgrade permissions.

Papertrade has hired Guardian Audits, and Guardian has publicly confirmed the partnership. At the time of the research report cutoff, there was still no Papertrade report, audited code version, findings, or fixes in the Guardian codebase.

Some protections have been outlined: temporary trading keys cannot be withdrawn, and liquidations or queue payouts should be callable by anyone. These statements still need to align with the deployed code.

Before the deposit opens at 1000x, evidence must be publicly disclosed: official contracts, matching source code, completed audits, and a small "deposit---trade---withdraw" test that anyone can follow.

What Can Prove This Model

On the launch day, a complete path must be demonstrated: deposit, open position, close position or liquidation, payment, withdrawal------the entire process requires no human intervention. Before confirmation, the application should display original profits, adjusted profits, and queue status.

A rapid surge in BTC or ETH prices will be the first real stress test, especially when traders are heavily biased to one side. It will simultaneously impact liquidation, position limits, pricing, and queues. Any debts should be assessed based on the speed of clearing, not just peak scale.

One month later, repeat usage will be more important than the trading volume at launch. Useful metrics include returning traders, the proportion of bot activity, the PAPER minted for each net dollar added to the pool, and staking income after deducting trading costs.

Once PAPER is tradable, its market price will determine the value of tokens acquired through losses. If buying directly is cheaper than the farm coin, it may also siphon activity away from trading products.

External distribution will come later. Direct integration with truly functioning builder code revenue will indicate that other applications find this mechanism useful.

Conclusion

Paper trading does not eliminate the need for liquidity. It requires traders to create that portion of liquidity through losses over time while rewarding those who provide these losses with PAPER.

The first wave of serious volatility will determine whether delayed payments are a cold start mechanism or simply convert liquidity shortages into protocol debt. Peak trading volume will not provide answers. The speed of payment and repeat usage will.