The derivatives exchange Papertrade announced on Sunday (11) that it began reducing exposure limits for its operations after identifying manipulation attempts shortly after its launch. A wallet obtained approximately US$ 1.28 million exploiting fluctuations in the price of Ethereum (ETH) on Hyperliquid, according to an analysis of trading records conducted by The Block.
Launched on October 10, the platform allows trades with leverage of up to 1,000 times. Its contracts use as a reference the midpoint price between Hyperliquid's best bid and ask offers, while a shared USDC fund takes the counterparty side of the positions.
The trader exploited this mechanism by opening leveraged positions on Papertrade and moving the reference price through trades on Hyperliquid. With 1,000x leverage, a swing of just 0.1% equals the full value of the deposited margin.
In one of the identified sequences, the wallet bought approximately 6,060 ETH, causing a 0.12% rise, and sold another 5,210 ETH minutes later. Over the course of the night, it moved US$ 231 million on Hyperliquid, paying about US$ 52,000 in fees.
Papertrade admits broad limits and tightens restrictions
Papertrade acknowledged that it had adopted broad parameters during launch, allowing up to US$ 1 billion in additional exposure per market and trading direction. That amount did not represent an absolute cap for all existing positions.
The company said it began restricting limits both in contracts registered on the blockchain and in order-routing infrastructure. The measure aims to reduce the profitability of new manipulation attempts, but the new maximum values were not disclosed.
The records examined by The Block show that the wallet accumulated US$ 3.18 billion in trading volume on Papertrade, with deposits close to US$ 1.2 million and withdrawals of US$ 2.48 million.
The trader also suffered losses. After opening 30 short positions in ETH, with 660x leverage and combined exposure of US$ 297 million, the trader had all the trades liquidated, accumulating an approximate loss of US$ 450,000.
Papertrade stated that the person responsible later returned almost all the gains to the liquidity fund through other accounts. It also stated that some users agreed to reverse operations considered manipulated in exchange for PAPER tokens.
These claims were not independently verified by The Block. The initially identified wallet continued to show withdrawals exceeding deposits by approximately US$ 1.28 million.
The exchange said its liquidity fund reached US$ 5 million and acknowledged that the price formation mechanism remains subject to manipulation, despite the announced restrictions.
