Senate Advances Crypto CLARITY Act While Hyperliquid and Kraken Make Major Protocol Shifts

Senate Banking Committee Moves Forward on Crypto Legislation

The U.S. Senate Banking Committee has advanced the Crypto CLARITY Act, marking another step forward in federal cryptocurrency regulation. However, the bill faces significant headwinds as it moves through Congress, with Democrats raising ethical concerns about former President Donald Trump's multibillion-dollar crypto holdings. These concerns could potentially delay or complicate the legislation's passage through the full legislative process.

Hyperliquid Returns to USDC Integration

In a notable strategic reversal, Hyperliquid has shifted its stablecoin strategy back toward USDC integration. This move comes after the decentralized exchange platform distanced itself from the stablecoin last year. The reconciliation brings Coinbase and Circle back to the center of Hyperliquid's trading ecosystem, signaling a pragmatic approach to liquidity and user demand despite previous tensions.

Kraken Drops LayerZero for Chainlink Bridge Solution

Major cryptocurrency exchange Kraken has abandoned LayerZero as its bridge infrastructure, opting instead for Chainlink's interoperability solution. The exchange's kBTC product now joins a growing roster of crypto assets that have moved away from LayerZero in favor of alternative cross-chain solutions, reflecting evolving preferences in blockchain interoperability technology.

Papertrade Introduces Loss Rebate Model

A new perpetual futures exchange called Papertrade is preparing to launch with an unprecedented tokenomic model that rewards losing traders. Developed by pseudonymous developer @izebel_eth, the platform will operate as a fully on-chain exchange built on Hyperliquid via HyperEVM.

The protocol offers traders several compelling features: up to 1000x leverage, zero slippage, no funding rates, no fees to open positions, and no gas costs passed to users. While these specifications resemble other high-leverage trading venues, Papertrade's underlying economics represent a fundamental departure from traditional exchange models.

How the PAPER Token Works

At the core of Papertrade's innovation is the PAPER token, which functions as a loss rebate mechanism. Traders receive PAPER tokens whenever they realize a loss, either by closing underwater positions or through liquidation. These tokens can be staked to earn a proportional share of protocol revenue, which is continuously distributed in USDC.

According to the protocol's documentation, PAPER will launch with zero initial supply and no pre-mining, team allocation, venture capital allocation, airdrop, or vesting schedule. Tokens only come into existence when traders lose money.

When traders close losing positions or face liquidation, their forfeited funds flow directly into the protocol's liquidity pool (LP). This pool pays out winning traders, with a small LP revenue share fee applied to profitable positions and redistributed to PAPER token stakers.

The protocol implements a $5 million soft cap on the liquidity pool. Once the LP exceeds this threshold, every dollar lost by traders, in addition to the LP revenue share fee, is owed to PAPER stakers. Unclaimed funds continue accumulating within the LP contract.

If the LP lacks sufficient funds to pay winning traders, a first-in-first-out (FIFO) queue system activates, with payouts distributed as new losses generate liquidity.

Trading Mechanism and Price Discovery

Papertrade operates without external counterparties. All trades execute as synthetic swaps against the LP, using the Best Bid/Offer (BBO) from Hyperliquid's order book. This BBO represents the median between the highest bid and lowest offer at a specific moment, determining entry prices and profit-and-loss calculations regardless of whether actual trades execute at that price on Hyperliquid.