The Papertrade pool, the cap and the payout queue

One pool against every trade

Papertrade has no order book and no trader on the other side. Every position is a bet against one pool of USDC: a winner is paid out of it, and a loser's loss goes into it.

The pool started at zero. Nobody can deposit into it, and it grows only from what traders lose. The only way to share in it is to hold PAPER, which is minted to the same traders whose losses fill it.

The cap: why the pool does not keep growing

The pool is capped at $5.00M. Once its running total is above the cap, every further dollar it gains can be swept to PAPER stakers. So in good times the pool sits near its cap and pays the surplus out, rather than piling up a reserve.

A second line sits lower, at $2.00M: above it the PAPER mint rate starts to decay, below it a dollar of loss mints the full 100 PAPER again.

The payout queue

Sometimes a winner closes and the pool cannot cover the profit in full. The unpaid part then goes into a queue and is paid, first come first served, as later losses refill the pool.

According to the Papertrade docs, the margin of a position opened from the available balance is never queued: only the profit can wait. It is a delay, not a cut, but nothing says how long the delay will be.

Right now the queue is empty, and wins are paid at once.

Why a sharp move costs the pool either way

A loser can lose no more than the margin: once that is gone, the position is liquidated. A winner is paid on the whole move. So when the price jumps, the losing side stops paying early while the winning side keeps earning, and the pool covers the gap.

That holds even when longs and shorts are balanced, and the higher the leverage, the thinner the margins and the sooner it bites.

Papertrade publishes stress curves for the positions open at this moment. By them, if BTC and ETH both rise 1%, the pool loses $2.71M, which is 57% of what it can pay. It outlasts the whole 1% the curves cover.

The curves assume every open position stays as it is. Traders closing or adding to them changes the picture within seconds.

What it means for a trader, and for a staker

• A winner may be paid later than expected when the pool is short. The profit is owed in full, but it waits.
• A loser is not affected by the queue: the loss is taken at close and PAPER is minted on it.
• A staker is paid the surplus only while the pool is above its cap, and fees are not paid out while the queue is active. A drained pool means payouts pause until it refills.

For a hedged pair the queue changes the arithmetic too; see what a hedged farm costs.

Short answers

Can the Papertrade pool run out of money?

Yes. It started at zero and can fall back to zero or below. Winners are then paid from the queue as new losses come in.

Is my margin at risk when the pool is empty?

By the Papertrade docs, the margin of a position opened from the available balance is returned at close, and only the profit can be queued. A position opened with a queued balance as its margin is treated differently.

Who decides where the cap is?

It is a parameter of the protocol, set by its team, and it can change. PAPER Scope reads it from the public Papertrade data instead of assuming a number.