TLDR
- PiggyBank reported a 15% USDC vault NAV drop after closing its LAB hedge position today.
- The LAB strategy used locked OTC token purchases hedged through perpetual futures short positions.
- Negative funding rates and thin liquidity made the LAB hedge costly for PiggyBank to maintain.
- PiggyBank excluded locked LAB holdings from NAV until the first unlock date on August 14.
- ZachXBT questioned PiggyBank’s risk controls and alleged insider concentration across LAB token supply.
PiggyBank said it unwound a LAB hedge after extreme volatility, weak liquidity, and negative funding rates made the position unsustainable. The protocol reported that the move would lead to a net asset value decline of about 15% in its USDC vault today.
The strategy started around one month ago, when PiggyBank purchased locked LAB tokens through an OTC desk for about $100,000. The protocol said the trade represented nearly 2% of its portfolio at the time and was part of its mid-cap basis trading strategy.
PiggyBank hedged the locked LAB exposure by opening perpetual futures shorts against the token. The trade later came under pressure as LAB prices moved sharply on thin liquidity, while funding rates turned deeply negative.
Locked LAB Holdings Removed From NAV
PiggyBank said maintaining the hedge became economically unreasonable and risked breaching internal limits. The team closed the short position to contain further downside after the hedge became too costly to keep open.
The protocol said the locked LAB position is valued at about $1.35 million at current prices. However, because the tokens remain illiquid, PiggyBank removed the position from NAV calculations until the first unlock on August 14.
The accounting change means the USDC vault will show a drawdown of about 15%. PiggyBank also reported expected NAV declines of around 12% for SPYx and 9% for JitoSOL.
Users Await Report On Risk Controls
The event has drawn attention to PiggyBank’s risk management process, especially because basis trades are often viewed as lower-risk strategies when liquidity and funding conditions remain stable. In this case, the use of a locked token and thin market conditions created losses across user-facing vaults.
On-chain investigator ZachXBT criticized the strategy and questioned the exposure of user funds to LAB. He had earlier alleged that insiders controlled more than 95% of LAB token supply, adding further scrutiny around the asset’s market structure.
PiggyBank said it will publish a detailed report next week covering the trade and follow-up steps. Users are seeking clarity on remaining fund exposure, possible recovery from the locked LAB position, and measures intended to reduce similar trading errors.
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