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The device itself doesn't add any space between paragraphs, it just displays whatever spacing is in the book.
Some sideloaded epubs have spaces between paragraphs, some dont, it makes no difference whether they are bought from Kobo or not. You can edit the book to remove the spaces if you wish.
Some Kobo kepubs have spaces between paragraphs, some dont. Sometimes a Kobo kepub will have spaces when the epub version of the book doesn't. In that case you can just download the epub version and use that instead.
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