Papertrade, a newly launched perpetual futures platform on HyperEVM, is facing allegations that traders manipulated its reference prices by moving Ethereum quotations on Hyperliquid while maintaining substantially larger positions on Papertrade.
The controversy emerged shortly after the exchange began operating on October 10, 2026, offering leverage of up to 1,000 times through a synthetic trading system.
On-chain analysis published by The Block on October 11 identified a wallet that recorded approximately $1.28 million in net gains after executing large Ethereum transactions on Hyperliquid alongside leveraged Papertrade positions.
Papertrade acknowledged attempts to manipulate Bitcoin and Ethereum reference prices and said it had begun tightening position limits. However, the protocol disputed suggestions that the incidents resulted from an overlooked flaw, arguing that its initial exposure limits had deliberately been set loosely to accommodate launch activity.
The episode raises questions about the risks of combining extreme leverage with execution prices derived from another trading venue.
How Hyperliquid Price Movements Affected Papertrade
Papertrade calculates execution prices using the midpoint between Hyperliquid’s best bid and best offer, commonly called the BBO midpoint. Unlike conventional order-book exchanges, Papertrade does not directly match opposing traders.
Instead, positions are settled against an internal USDC liquidity pool, while the platform references Hyperliquid’s market quotations.
The arrangement creates an opportunity for traders with sufficient capital to influence the reference price while holding larger leveraged positions elsewhere.
An X user identified as Boblob initially alleged that two wallets were executing transactions worth approximately $20 million each, moving Ethereum prices by 10 to 20 basis points. The Block subsequently examined trading records involving wallet 0x2025…840e.
Between 6:01 p.m. and 6:02 p.m. Eastern Time on October 10, the wallet purchased approximately 6,060 ETH on Hyperliquid, moving prices upward by around $3. The following minute, it sold approximately 5,210 ETH, pushing prices down by roughly $3.50.
The wallet executed approximately $231 million in Ethereum trading volume on Hyperliquid that evening, incurring around $52,000 in fees. Papertrade’s records showed approximately $3.18 billion in trading volume and $1.28 million in profit associated with the address.
The wallet withdrew approximately $2.48 million after depositing $1.2 million.
Papertrade Tightens Limits as Liquidity Risks Emerge
The same wallet subsequently opened 30 Ethereum short positions using approximately 660-times leverage, representing a combined notional exposure of $297 million. Those positions were liquidated more than three hours later, generating approximately $450,000 in losses.
Papertrade’s interface showed that the losses resulted in the issuance of approximately 17.6 million PAPER tokens.
The protocol said the trader later returned nearly all earlier gains to its liquidity pool through additional accounts. However, The Block could not independently verify that claim, and the originally identified wallet’s withdrawals continued to exceed its deposits.
Papertrade also reported that some users had agreed to reverse manipulated transactions while retaining associated PAPER rewards.
The company said its liquidity pool held approximately $5 million and that $25 million had been distributed to PAPER stakers. Its published figures showed the pool temporarily declining to approximately $2.4 million before recovering. Papertrade has started reducing open-interest limits both on-chain and through its transaction relayers.
The company argues that tighter exposure controls can make manipulation economically unattractive without eliminating every possible attack. The incident does not establish that Hyperliquid’s underlying blockchain or trading engine was compromised.
Instead, it illustrates the risks created when a separate leveraged protocol relies on external market quotations. The central concern is whether comparatively small movements in an underlying market can produce disproportionately large profits or losses in synthetic positions.
Papertrade’s revised risk controls will determine whether the platform can limit that exposure while maintaining its advertised high-leverage trading model.