Decentralized trading platform Papertrade is facing allegations of possible price manipulation after two cryptocurrency wallets reportedly used around $20 million in trades on Hyperliquid to move Ethereum prices by 0.1% to 0.2%. The wallets allegedly held much larger leveraged positions on Papertrade, raising concerns about how the platform calculates trading prices.
The allegations surfaced on October 11, when crypto trader Run highlighted claims made by X user Boblob (@Dr_bobo54). The researcher alleged that two wallets were exploiting a weakness in Papertrade’s pricing system by moving Ether prices on Hyperliquid while holding positions worth hundreds of millions of dollars on Papertrade.
However, the alleged manipulation has not been independently confirmed, and no verified figure for potential losses has been reported.
Summary
- Two wallets allegedly used around $20 million in Hyperliquid trades to move ETH prices by 0.1% to 0.2%.
- The wallets reportedly held leveraged Papertrade positions worth hundreds of millions of dollars.
- Papertrade uses Hyperliquid’s best bid and offer midpoint to price its synthetic trades.
- The allegations raise concerns about whether large orders could influence Papertrade’s pricing.
- No independently verified losses or confirmed public response from Papertrade had been reported as of October 11.
Papertrade faces allegations over large ETH trades
According to Boblob, the two wallets placed large Ether trades on Hyperliquid that reportedly shifted prices by 10 to 20 basis points. One basis point equals 0.01%, making the alleged movement equivalent to 0.1% to 0.2%.
The researcher claimed the wallets also held large long positions on Papertrade. These positions would generally benefit from rising ETH prices.
The alleged strategy relied on the connection between Hyperliquid’s order book and Papertrade’s pricing system. If large orders temporarily move the reference price, positions on Papertrade could be affected even if the traders do not execute trades of comparable size on that platform.
Boblob described the activity as a suspected exploit and called for the issue to be addressed. However, the available reports do not independently establish who controlled the wallets, whether the activity was intentional manipulation or whether the traders made a profit.
A report by TokenPost on October 11 also discussed the alleged transactions, but a verified transaction-by-transaction analysis and confirmed loss calculation were not available.
How Papertrade’s pricing system works
The main concern involves Papertrade’s use of the midpoint between Hyperliquid’s best bid and best offer as its reference price.
The best bid is the highest price a buyer is willing to pay, while the best offer is the lowest price a seller is willing to accept. The midpoint is calculated from these two prices.
According to Papertrade’s documentation, its smart contracts use this midpoint to determine entry and exit prices for synthetic trading positions. Instead of matching every customer with another trader through a conventional order book, the platform settles positions against its liquidity pool.
When a trader opens a position, the system records the reference price. When the position closes, the protocol calculates the profit or loss using the updated price.
Papertrade offers leverage of up to 1,000 times on supported markets, including Bitcoin and Ethereum. High leverage can magnify the effect of even small price movements, making the accuracy of reference prices particularly important.
The concern raised by the researcher is that orders can sometimes move the best bid or offer without being executed. If the midpoint changes as a result, a platform using that price directly could potentially calculate a position’s value using a temporary or distorted quotation.
Papertrade’s published risk disclosures reportedly acknowledge risks associated with manipulation of the best bid and offer. However, the existence of such a risk does not prove that the alleged exploit succeeded.
Hyperliquid uses additional safeguards for its own markets
Hyperliquid uses several price measures for its native perpetual futures markets, including oracle prices and mark prices.
Its documentation explains that oracle prices use a weighted median of prices from centralized exchanges, with validators updating the values approximately every three seconds. The mark price combines multiple market-price inputs and is used for margin calculations, unrealized profits and losses, and liquidation decisions.
Papertrade’s described approach is different because its synthetic positions reference the midpoint between Hyperliquid’s best bid and offer.
This distinction is important. The allegations concern Papertrade’s pricing design and do not establish that Hyperliquid’s blockchain, trading engine or oracle system was compromised.
A separate incident in July involved a Hyperliquid-linked SK Hynix perpetual contract that dropped sharply after an unusual transaction in South Korea affected the external price reference. The operator, Trade.xyz, investigated the incident and said it would cover qualifying liquidation losses.
That case involved a different contract and pricing mechanism. It does not confirm the allegations against Papertrade.
Potential losses remain unconfirmed
Papertrade’s model places its liquidity pool on the opposite side of customer positions, with traders’ profits and losses settled through the protocol. Its documentation also describes a PAPER token linked to eligible trading losses and a staking system that distributes funds under the platform’s rules.
The platform’s settlement structure raises questions about how it would handle a large number of profitable withdrawals if its liquidity pool did not have enough available funds. However, the latest allegations do not establish that the suspected activity caused a shortfall or left users unable to withdraw their funds.
As of October 11, no independently verified assessment had established the total value of affected positions, confirmed withdrawals linked to the alleged activity or losses suffered by Papertrade users.
No confirmed public response from Papertrade addressing the two-wallet allegations was identified in the reports reviewed. The platform had not announced a verified loss total, a compensation arrangement or a timetable for changing its pricing system.
The allegations therefore remain unproven, but they highlight a key risk for leveraged trading platforms: when synthetic positions rely on prices from another market, even a small change in the reference price can have a much larger impact on highly leveraged trades.
