Papertrade: a wallet loses $979,000 in trading yet ends up in profit

"The only winning move is not to play." The trader who withdrew $1.28 million from Papertrade by manipulating the price of ETH on Saturday night was just a first case study. Another wallet executed 1,012 trades with a volume of $10.1 billion, lost $979,000 on its positions, and still ended up in the green.

The WarGames computer did not foresee this variant. Losing pays off on Papertrade, as long as you know how to lose a lot and cheaply.
Key points of this article:

• Papertrade has launched a system where losses trigger the issuance of PAPER tokens, rewarding losers in a common pool.
• One wallet achieved $10.1 billion in volume, lost $979,000, and yet finished with a profit thanks to loss mining.

Papertrade: a pool against all and tokens for losers

Launched on Saturday, October 10, on HyperEVM, the smart contracts layer of Hyperliquid, Papertrade offers perpetuals (futures contracts with no expiration) with leverage up to 1,000x on BTC and ETH. No order book. A common pool in USDC serves as a single counterparty, pays the winners, and absorbs the losses, while prices are copied from Hyperliquid.

The real uniqueness lies elsewhere. Each loss or liquidation paid into the pool triggers the issuance of PAPER tokens for the benefit of the loser. The scale starts at 100 PAPER maximum per dollar lost as long as the pool weighs less than $2 million, then decreases as it grows. This is called loss mining.

These PAPER tokens are then staked. They entitle holders to a share of the platform's revenue paid in USDC, and all growth of the pool beyond $5 million also goes to the stakers. The only downside is that they cannot yet be resold. Their transfer will only open during a later phase.

Wallet 0x35b2: $10.1 billion in volume for $17,800 in profit

According to Lookonchain, the wallet 0x35b29bdd accumulated 1,012 trades and $10.1 billion in volume, averaging nearly $10 million per trade. Its net loss amounts to $979,000. In return, it received 252 million PAPER and earned about $997,000 in USDC from staking. Do the math. It remains with a profit of about $17,800, not counting the PAPER still in its possession.

One detail deserves a calculator. At the most generous scale, 252 million PAPER implies at least $2.52 million in eligible losses. However, the wallet only shows a net loss of $979,000. The only compatible reading with this scale is that the PAPER is calculated on each losing position taken in isolation, and its winning trades compensated for a good part of the damage without detracting from the PAPER harvest.

To measure the efficiency of the process, compare it with Saturday's trader. His liquidated shorts cost him $450,000 for 17.6 million PAPER, according to The Block. Wallet 0x35b2 obtained fourteen times more for a net loss barely more than twice as high.
Wallet 0x35b2 on Papertrade: $979,000 in cumulative losses, $10.1 billion in volume, and 252 million PAPER staked. Source: Papertrade

Loss mining: how to lose a lot without losing much

The research firm Delphi Digital had described the flaw even before the opening. A trader simultaneously opens a long position and a short position of the same size. At 1,000x, a margin of $10,000 is enough to control $10 million of ETH, and a movement of 0.1% wipes out this margin.

The price thus moves by 0.1% in one direction or the other. One leg is liquidated, and its $10,000 goes to the pool, triggering the issuance of PAPER. The other leg gains about the same amount, paid out by this same pool. For the trader, the balance boils down to fees. For the platform, an "eligible" loss has just been recorded and rewarded.

Lookonchain does not detail the strategy of wallet 0x35b2. However, its profile fits the Delphi scenario, with colossal volume, tickets close to $10 million, and a minuscule net loss of around one dollar for every $10,000 traded.

Two Different Wallets for Two Papertrade Flaws

Be careful not to mix up the files. The trader with $1.28 million operates from address 0x2025...840e, identified by The Block, and not from 0x35b2. The former attacked the price source by moving ETH by $3 on Hyperliquid. The latter exploited the reward scale without touching the market.

Papertrade claims that Saturday's trader returned most of their gains through new accounts. The Block could not verify this, and no public data currently links the two addresses.

The issue of loss mining remains unresolved. As of October 10, traders had lost $18.2 million net on the platform, and stakers received $12.6 million, according to The Defiant. Each PAPER minted at a good price dilutes the other stakers and captures a share of the losses incurred by those who are truly losing.

Papertrade reads all its prices from Hyperliquid, whose HLP vault had already absorbed $4 million in losses in March 2025 on a single ETH position. The PAPER remains locked until a later phase with no date announced to date, and 252 million of them are already waiting in wallet 0x35b2.