If the free circulation of a token makes the entire trading platform more vulnerable to attacks, then restricting transfers becomes an option the platform must consider. But the cost is also clear: users lose part of their exit paths, early holders may be gradually diluted, and the project team must prove that this economic model is still worth participating in.
Papertrade is adjusting three mechanisms simultaneously.
First, it is temporarily not opening off-contract transfers for $PAPER to avoid new risk combinations forming between external perpetual contract markets and the platform's internal liquidity pool. Second, it is adjusting the fee for closing positions near the opening price to weaken the advantage of short-cycle arbitrage bots. Third, it is changing PAPER's minting curve to redistribute long-term economic rights between early holders and subsequent users.
The three adjustments point to the same issue: what Papertrade wants to build is not just a tradable token, but an economic system that binds traders' profits and losses, protocol risk, and user incentives together.
But after the system had been running for more than a week, the team began to discover that the originally designed incentive mechanisms could also be exploited in reverse by participants.
Why is Papertrade unwilling to open PAPER transfers?
In the explanation published by blurr and jez, the team gave a direct reason: if PAPER can circulate freely in external markets and form perpetual contracts, then traders can establish additional bets on Papertrade's liquidity pool solvency by shorting PAPER.
This would change the cost-benefit structure of attacks.
The size of Papertrade's liquidity pool can be limited through risk parameters. According to the team's assumptions, if the liquidity pool size is $10 million and an attacker needs to spend $15 million to manipulate the price of Bitcoin or Ethereum, then from the perspective of profits obtained solely from the liquidity pool, this attack is not worthwhile.
But if the attacker can also establish $10 million in PAPER short exposure in external markets, the situation may change. In addition to profits from manipulating the internal market, the attacker may also profit from the PAPER short position.
The potential sources of profit from the attack thus expand from the liquidity pool itself to a combination of the liquidity pool and external PAPER short exposure.
This is precisely the core reason the team is unwilling to open off-contract transfers. According to its explanation, even if Papertrade can control internal risk by limiting the liquidity pool size, it cannot control the leverage and short scale in external perpetual contract markets.
The team is concerned that once PAPER can circulate freely, attackers may establish sufficiently large external positions, forcing the platform to further compress its internal trading exposure. Ultimately, while the token gains liquidity, the trading platform may lose the capacity to carry large positions.
To be clear, the $10 million and $15 million figures provided by the team are hypothetical numbers used to explain the risk model, not actual attack amounts that have occurred. This example illustrates a potential cross-market attack path, rather than proving that such an attack has taken place.
The team explicitly stated in its announcement that there are currently no plans to open off-contract transfers.
This also means that the suspension of transfers cannot simply be understood as a short-term delay. At least at this stage, Papertrade has chosen to prioritize controlling risk exposure rather than allowing PAPER to gain broader price discovery and liquidity through external perpetual contract markets.
Adjustments by Paragon and Aster Expose Settlement Risks of Pre-Launch Tokens
Following the change in PAPER transfer arrangements, the first issue to address is derivative positions that have already been established.
Paragon halted related trading and settled positions at a time-weighted average price (TWAP) of $0.026296. Aster DEX entered reduce-only mode and plans to delist PAPER contracts on October 20.
Such events expose a structural problem with pre-launch token derivatives.
When the underlying token is not yet freely circulating, what the market trades is not entirely the spot asset itself, but also expectations regarding the future timing of transfer opening, circulation scale, market demand, and trading depth.
When the circulation rules of the underlying token change, the assumptions on which the original price relied may become invalid.
TWAP can provide an average price within a specific time window, but it does not equal the achievable spot price in the future, nor can it guarantee that all traders can exit at that price. For traders with different leverage levels, position sizes, and risk exposures, the actual impact of settlement arrangements may also differ.
Therefore, the trading risks of pre-launch tokens stem not only from price volatility but also from how existing contracts are handled after changes to the underlying asset rules.
For trading platforms, this requires contracts to clearly define handling procedures under extreme circumstances before launch, including how positions are settled, how margin is handled, and when trading is halted when the underlying token suspends transfers, delays circulation, or changes issuance rules.
For PAPER, the adjustment in the external market further amplified liquidity issues. But this is only part of Papertrade's current mechanism adjustment; the truly noteworthy changes are also occurring within the platform.
Fee Adjustment: Papertrade Begins Targeting Short-Cycle Arbitrage Strategies
When Papertrade launched, it adopted a fee mechanism close to the opening price.
According to rules disclosed by the team, the original deadband fee was 0.2 basis points, or 0.002%. The price needs to first move in the trader's favor beyond this range before the trader can begin to earn returns.
This mechanism was intended to reduce trading costs for ordinary traders, but it also left exploitable space for short-cycle arbitrage bots.
The team stated that before launch, they tried multiple fee curves to eliminate the advantage of low-timeframe arbitrage bots relative to the liquidity pool while minimizing the impact on ordinary traders. However, they had not found a fully satisfactory solution, so they decided to launch with the original mechanism first.
Real trading data after launch allowed the team to further identify which strategies could consistently profit and adjust fees accordingly.
The new mechanism distinguishes between trading hours and non-trading hours. During trading hours, positions whose closing price change is within 6 basis points, or 0.06%, above or below the opening price will be affected by the new fee rules. During non-trading hours, the corresponding range is 10 basis points, or 0.1%.
For closing trades that exceed the corresponding price change threshold, fees will not change due to this adjustment.
The team also stated that, based on backtesting of data since launch, the impact of these changes on the profitability of bot strategies is about 15 times that on ordinary traders. The goal is to compress the advantage of low-timeframe arbitrage strategies while creating room for a moderate increase in position limits in the future.
The 15 times here refers to the relative impact on strategy profitability, not that fees increased 15 times. The 0.06% and 0.1% are also not fee rates, but price change thresholds used to determine which closing trades are affected by the adjustment.
This adjustment reflects a real problem: when a trading platform tries to attract users with extremely low costs, the participants best at exploiting tiny pricing differences may not be the users the platform most wants to serve.
If the fee mechanism长期 gives short-cycle bots an advantage, the platform may need to protect the liquidity pool by limiting position sizes. The team hopes to reduce restrictions on trading scale by modifying the fee structure.
However, whether this mechanism can remain effective in the long term also depends on how subsequent trading behavior changes. The team also acknowledges that the current adjustments may still not be strict enough, and further modifications in the future cannot be ruled out.
PAPER minting curve changes: early holders will be gradually diluted
What directly affects the token economic model more than the fee adjustments is the change to PAPER's minting mechanism.
According to the team's explanation, PAPER originally connected trader incentives and the platform's solvency through trading loss rewards and a special minting mechanism under near-bankruptcy conditions.
The new plan will adjust these two mechanisms separately.
The first is token issuance corresponding to general losses.
In the future, for every $1 of loss, tokens will be minted according to a certain proportion of the PAPER supply at that time. The team's approximate figure is that for every cumulative $1 million in losses, this corresponds to about 0.1% of the supply at that time, with the specific ratio depending on the minting rate applicable at the time of the contract upgrade.
This differs from the previous method of distributing tokens in fixed quantities. Token issuance is no longer simply mapping loss amounts to a fixed number of PAPER, but is instead linked to the supply at that time.
The second is the minting mechanism under near-bankruptcy conditions.
Previously, this mechanism used a fixed minting of 100 PAPER for every $1 of loss. The new plan changes this to a time-varying curve multiplier.
The team stated that this adjustment is also intended to block a specific attack path: attackers use large straddle positions, close only the profitable side, temporarily push the protocol into bankruptcy, and then try to mint as much PAPER as possible.
The new mechanism attempts to reduce the minting risk brought by such operations.
But what truly affects long-term holders is the team's explicit statement about the consequences of the new minting curve.
According to the announcement, the new mechanism is expected to have a relatively small impact on PAPER minting in the short term, but over the long term it will gradually dilute early holders and give later participants a relative advantage.
The team hopes to use this to adjust PAPER into an economic model closer to that of a trading platform rebate, that is, to make the token play more of a role in trading incentives and revenue rebates, rather than allowing early holders to continue occupying an excessively large share of returns.
This is not merely a technical upgrade, but a change in the rules of long-term benefit distribution.
Early holders might have originally relied on the quantity of tokens they already held to share in the gains from subsequent protocol development. However, if token issuance continues in the future and newly issued tokens can participate in the distribution of related rights, the relative share of early holders could decline.
That said, the exact degree of dilution still depends on the actual minting rate, staking participation, and dividend rules. The information currently disclosed by the project team is insufficient to calculate how much dividend a given holder might lose in the future, nor can it directly lead to the conclusion that the token price will inevitably fall.
It should be made clear that an increase in token supply, changes in staking share, and a decline in market price are three distinct issues. They may influence each other, but they cannot be directly equated.
Can staking dividends support PAPER's economic value?
The question of PAPER's value ultimately still comes back to protocol revenue and the actual rights that holders can obtain.
If stakers can participate in the distribution of protocol revenue according to clear rules, then even if the token cannot currently be freely transferred, it may still have some economic value.
But this judgment needs to be based on verifiable data.
First, the source of dividend funds needs to be clarified. Trading volume does not equal protocol revenue, and protocol revenue does not equal the final distributable amount. The relationships among fees, trader profit and loss, liquidity pool settlement, and other revenue mechanisms all need to be distinguished according to specific rules.
Second, it is necessary to know the effective staking share actually participating in the distribution. How many PAPER tokens a given holder owns does not directly determine how much income they receive; the key is what proportion these tokens occupy in the total effective staking share.
Finally, new issuance also needs to be included in the calculation. If newly minted PAPER can participate in staking, then holders' relative shares may change. Even if protocol revenue remains stable, the dividends an individual actually receives may still be affected.
This can be understood with a simplified relationship:
An individual's dividend depends on the protocol's distributable revenue and the individual's proportion of the effective staking share.
This is only a conceptual model, and actual calculations still need to be based on Papertrade's specific distribution rules.
More importantly, dividends cannot automatically offset trading losses, nor can they guarantee principal safety. The trading losses users incur to obtain PAPER and the tokens and dividends they may receive in the future belong to two different sets of economic outcomes.
If users actively increase trading volume to earn token rewards, or even take on losses they would not otherwise accept, the incentive mechanism may shift from reducing trading costs to a cost-uncertain pursuit of returns.
For Papertrade, token incentives can only become part of a long-term economic model if they can drive sustained real trading demand.
What Papertrade aims to build is a trading platform rebate model
Looking at transfer restrictions, fee adjustments, and minting curve changes together, Papertrade's direction is becoming clear.
It hopes to use PAPER to connect trading activity, platform risk, and user incentives, while preventing the token itself from becoming a tool for external attacks on the platform.
Restricting transfers is intended to control cross-market risk. Adjusting fees is intended to weaken the advantage of low-timeframe arbitrage strategies. Modifying the minting curve is intended to adjust the long-term token distribution method, bringing PAPER closer to a trading platform rebate mechanism.
The goal of this design is to return as much of the profit that traditional market makers and trading platforms capture to users as possible, while enabling the platform itself to operate sustainably.
But this model has a prerequisite: the platform must continuously have real trading demand, and revenue must be able to cover its incentive and operating costs.
If trading activity mainly depends on token rewards, then when rewards decline, issuance rules change, or the token cannot be sold, whether users are still willing to stay on the platform will become a key question.
Conversely, if Papertrade can provide a competitive trading experience, continuously attract user participation, and control short-term arbitrage and liquidity pool risks, then token incentives are more likely to become a supplementary mechanism rather than the sole support of the entire system.
Therefore, evaluating Papertrade's long-term value cannot rely only on PAPER's price, holdings, or dividend performance in a certain period; it also requires observing whether the platform has formed trading demand that does not depend on short-term incentives.
What should be observed next?
For PAPER holders and Papertrade users, there are several key variables worth continuously tracking going forward.
First, transfer and exit rules. The project team currently has no plans to open off-contract transfers. Whether this stance is adjusted later will directly affect token liquidity and users' exit paths.
Second, the actual minting rate. The new mechanism ties general loss rewards to the supply at the time, and minting near bankruptcy will also switch to a new curve. The actual minting volume and changes in supply determine the pace of long-term dilution.
Third, the actual effect of fee adjustments. Whether the profitability of short-cycle bot strategies declines, whether the platform accordingly raises position limits, and whether ordinary traders' transaction costs are significantly affected.
Fourth, the protocol's real revenue and dividends. It is necessary to clarify the sources of distributable revenue, the actual distribution amount, the effective staking scale, and the impact of new tokens on individual distribution shares.
Fifth, liquidity pool security and trading demand. After restricting transfers and adjusting fees, whether the platform can carry larger trading volumes while controlling risk is the key to whether this model can operate over the long term.
These indicators correspond respectively to security, issuance, transaction costs, revenue, and real demand. Only by combining them can one judge whether Papertrade's economic model is moving toward sustainability.
Conclusion: Token rules are changing, and so are the interests at stake
PAPER's temporary closure of off-contract transfers is not an isolated liquidity adjustment.
Together with changes to the fee structure and the token minting curve, it constitutes a recalibration of Papertrade's early economic model.
For traders, the advantages of short-cycle arbitrage may be compressed. For early holders, future token issuance may gradually dilute their relative shares. For later users, the new incentive mechanism may offer different participation conditions.
For Papertrade, restricting external circulation is only part of controlling risk. It also needs to prove that fee adjustments can improve the operating conditions of the liquidity pool, that the new minting curve can form a reasonable incentive distribution, and that the platform itself can continue to attract real trading demand.
Token issuance rules determine who can obtain shares, fees determine who can profit from trading, and transfer rules determine who has the option to exit.
Papertrade is adjusting all three at the same time. What is truly worth observing next is whether these changes can give the platform greater trading space, and which users will ultimately share in that space.
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