Opinion: Papertrade Suspected of Price Manipulation Exploit by Two Addresses, Protocol Has Obvious Vulnerabilities

BlockBeats news, October 11: X platform user Boblob posted that Papertrade is being actively exploited by two wallet addresses. The addresses conduct trades on Hyperliquid at a single-trade scale of approximately $20 million, causing ETH price fluctuations of about 10 to 20 basis points, and establish long positions with notional values reaching hundreds of millions of dollars on Papertrade.

The user believes this exposes an obvious vulnerability in the Papertrade protocol that must be fixed as soon as possible, otherwise long-term sustainable development will be difficult to achieve. The above claims are currently one-sided allegations by the user.

According to Papertrade's official documentation, the main risk in the protocol's underlying design is BBO (best bid and offer) price manipulation on the Hyperliquid order book. Papertrade directly reads Hyperliquid's BBO as the execution price. Although the normal BBO bid-ask spread for BTC and ETH is small, it is not zero. An attacker can place a small limit order on the Hyperliquid order book without it actually being filled: as long as the order is at the current best bid or best ask, it can change the BBO, thereby shifting the mid-price by one or two minimum price units. By changing the BBO in this way, the attacker may open or close positions on Papertrade at a distorted mid-price and profit when the quote returns to normal market levels. This remains a real residual risk: Papertrade's pricing process lacks an independent reference price and therefore cannot identify and reject abnormal quotes.