PiggyBank’s LAB hedge backfires as USDC vault NAV drops 15%

PiggyBank has closed a hedge tied to LAB after sharp price swings and deeply negative funding rates made the trade too costly to maintain. 

The DeFi yield protocol said the move will reduce the net asset value of several vaults, including an estimated 15% drawdown for its USDC product.

The disclosure drew fresh questions about how PiggyBank used depositor capital and measured risk. On-chain investigator ZachXBT said the protocol had lost user assets by “gambling on blatant scam coins,” while PiggyBank said it acted before the position crossed its risk limits.

PiggyBank closes LAB short after funding pressure

PiggyBank said it opened the position about one month earlier with $100,000, equal to roughly 2% of its portfolio at that time. The strategy involved buying locked LAB tokens at a discount through an over-the-counter desk and shorting LAB perpetual contracts to offset price risk.

The protocol said LAB then faced “violent manipulation,” thin liquidity and deeply negative funding rates. Those conditions raised the cost of keeping the short open. PiggyBank said maintaining the hedge had become “economically irrational,” so it closed the short to limit further losses.

USDC vault faces the largest NAV drawdown

PiggyBank valued its locked LAB position at about $1.35 million using current prices. However, the protocol removed that holding from its net asset value calculation because the tokens cannot yet be sold. The first unlock is scheduled for August 14.

As a result, PiggyBank expects its USDC vault to show an estimated 15% drawdown. SPYx could record a 12% decline, while JitoSOL could fall 9%. These figures reflect the accounting treatment announced by the protocol and may change when the locked LAB tokens begin unlocking.

ZachXBT questions LAB exposure and risk controls

ZachXBT criticized the trade and questioned why user funds gained exposure to LAB. His response followed earlier claims about the token’s ownership and trading activity. As previously reported by crypto.news, he alleged in May that LAB-linked insiders controlled more than 95% of supply and had hidden key distribution details.

Those claims remain allegations, and the available PiggyBank statement did not address LAB’s token distribution. It focused on the hedge, funding costs and the decision to exclude locked tokens from NAV. PiggyBank also did not announce compensation or explain whether users can withdraw at the revised values.

Detailed PiggyBank report remains pending

PiggyBank said it will publish a detailed report with its next steps. The team has not yet released that report publicly. The coming update may provide trade records, risk thresholds, loss calculations and plans for the August unlock.

Until then, users have limited information on the final recovery value of the LAB position. The locked tokens could regain value before release, but they could also trade lower. PiggyBank’s next report will determine how the protocol records future changes and manages the affected vaults across its three products.