Crypto Traders Lost Money on Purpose to Farm a Token
Some Papertrade traders took deliberate losses to mint PAPER, helping the platform book $56 million in launch week, over three times Hyperliquid’s revenue, with most of it paid to stakers.
Key Takeaways
- Papertrade revenue hit $56M from October 10-17.
- More than $50M was paid to PAPER stakers.
- PAPER mint rate fell from 100 to 11.
- New mint rules took effect October 21.
GSR research analysts Carlos Guzman and Slater Santer reported the figures in the firm’s October 19 weekly, putting Papertrade’s launch-week revenue at 3.2 times Hyperliquid’s $17.5 million and its launch-day take at $25 million.
Every PAPER token began as a losing trade
Papertrade is a synthetic perpetuals venue on HyperEVM, the smart-contract layer of Hyperliquid, offering up to 1,000x leverage on BTC and ETH. Traders never face each other. Each position is a bet against a protocol-owned pool that, according to Papertrade’s pool documentation, started at $0 with no seed capital and grows from user losses.
PAPER is minted only when a trader closes at a loss or gets liquidated. The project’s token overview calls it a “consolation claim on future protocol value,” and because it cannot yet be transferred between wallets, every token in circulation was minted on a losing trade. Staked PAPER earns a pro-rata share of the protocol’s USDC distributions.
Under the launch contracts, each dollar of qualifying loss minted 100 PAPER while the pool held less than $2 million, and fewer as the pool’s cumulative gains grew. GSR tracked the rate falling to 31 PAPER per dollar by October 12 and to 11 by October 19.
GSR identified two ways traders farmed the token. Some raced through liquidations to stack PAPER as quickly as possible. Others ran delta-neutral setups, pairing positions so their net market exposure stayed near zero while maximising PAPER per dollar lost. Leverage set the pace. At 1,000x, $100 of margin controls a $100,000 position that is wiped out by a move of roughly 0.05%, and GSR counted more than $678 billion of launch-day notional volume against about $137 million of deposits.
Following one dollar from a losing trade to a staker
The path from a loss to a payout runs through four steps, set out in Papertrade’s token documentation and in DeFiLlama’s published Papertrade adapter, which defines how the revenue figure is counted. GSR lists DeFiLlama among its data sources.
GSR’s numbers show how much of the headline travelled that path. The pool took in roughly $56 million in launch week and, net of close and liquidation fees, paid more than $50 million to stakers, at least 89 cents of every revenue dollar. For traders as a group, the week came close to a round trip: about $56 million in, more than $50 million out to holders of loss-minted tokens.
The developer’s cut is half of the 2% fees, which DeFiLlama books as a separate revenue line. GSR counted $63.4 million of liquidated collateral through October 18, so the developer’s half of liquidation fees comes to no more than about $634,000. GSR does not break out closing fees, which leaves the developer’s full take for the week unquantified.
Hyperliquid’s revenue comes from the fee, not the loss
Hyperliquid
Charged on: position size, 0.045% base taker fee on perps
Paid by: every taker, win or lose
Goes to: HLP vault, assistance fund, market deployers
Oct 10–17 revenue: $17.5 million
Papertrade
Charged on: realised losses, plus 2% of profit or loss
Paid by: losing traders, plus 2% of winners’ gains
Goes to: PAPER stakers, minus the developer’s half of fees
Oct 10–17 revenue: $56 million
Hyperliquid’s fee schedule states that its fees are “entirely directed to the community,” with the assistance fund converting its share into HYPE that is then burned. Neither venue sends its fees to a company treasury. The difference is what the trader pays for. A Hyperliquid taker pays a slice of position size in exchange for execution, while most of Papertrade’s intake is money its traders lose.
That difference also stops the two venues’ volume numbers from being compared directly. At Hyperliquid’s base taker rate, Papertrade’s $678 billion launch-day notional would have generated about $305 million in fees. Papertrade booked $25 million that day, because its income tracks profit and loss rather than position size.
Inside the round trip, money moved two ways
The group-level picture hides two transfers. The first runs from losers to winners. The pool’s intake is net of winning trades it had already paid, so traders lost more than $56 million in gross terms.
The second runs from late minters to early ones. Papertrade’s staking rules split each distribution in proportion to staked balances at that moment, with no lockup or cooldown. A loss taken on launch day therefore earns roughly nine times the payout share of the same loss taken on October 19.
With no open market for PAPER, the USDC it collects is the only return that can be measured. A farmer’s result is that USDC minus the losses taken, adjusted for any gains on the winning leg of a hedge. No protocol-wide total can show that figure for an individual account.
The new rules pay extra to refill an empty pool
When the pool cannot cover a winning close in full, the unpaid profit enters a first-in, first-out queue and is cleared as later losses refill the pool. The trader’s original margin comes back immediately, unless the position was opened with an existing queued balance.
Papertrade’s second contract set went live on October 21, after GSR’s measurement window. Under the revised mint curve, each loss mints a fixed share of the current PAPER supply per dollar, with no cap. While the pool sits below zero, the part of a loss that refills the deficit counts up to five times toward the mint, a multiplier that ramps up over three days. The pool documentation names an underwater pool as the point where PAPER mints fastest, so a shortfall owed to winners is met with a larger mint for losers.
The same upgrade slightly holds back winning closes on small moves and lets a keeper switch winners to a separate off-hours payout curve. Because each dollar of loss now mints a set fraction of existing supply, every new loss dilutes current stakers’ share of future distributions. As of October 22, the mint-curve page had not published the live value of the constant that sets that fraction.
What would show the loop can run without launch incentives
Supporters of the design have a straightforward argument. PAPER launched with zero supply and no team, investor or airdrop allocation, the pool has no outside depositors, and the developer takes half of a 2% fee. By that standard, launch week delivered a revenue share to the people who funded it.
The limit is that every payout needs fresh losses, while the token reward for supplying them shrank sharply within nine days of launch. The October 21 contracts change how that reward is calculated, not the dependence on new losses.
The first full week under the new contracts, October 21 to 28, offers a direct test. If staker distributions stay near launch-week levels while the pool remains above zero, losses are arriving without help from the bonus. If the pool slips below zero and the five-times multiplier starts carrying the refill, Papertrade is paying extra to attract the losses that cover its winners.
This article is provided for informational purposes only and does not constitute financial or investment advice. Leveraged trading and token incentives can result in substantial losses.
Kosta has reported on cryptocurrency markets and blockchain infrastructure since 2020, bringing over six years of hands-on experience in the crypto industry built through daily tracking of markets, trends, and emerging blockchain developments. Specializing in Bitcoin on-chain analysis, institutional ETF flows, and digital asset price action, his work at Coindoo has been cited by other news agencies and consistently covers market developments with a focus on data-driven reporting across Bitcoin, Ethereum, Solana, and XRP. Over the years, Kosta has contributed to multiple crypto media outlets in different regions, authoring over 6,000 articles across the sector. His reporting spans cryptocurrency markets and the broader fintech industry, tracking not only price action but also the technological and regulatory forces shaping the ecosystem. To support his analysis, Kosta actively leverages on-chain data and metrics from leading platforms such as Santiment, Glassnode, and CryptoQuant, enabling deeper, evidence-based market insights. He believes in the power of transparency and the data that underpins the blockchain ecosystem. His academic background in Marketing Management from Denmark further complements his analytical approach, adding a strong understanding of communication strategy and content positioning to his work.
