PiggyBank came under pressure after an unsuccessful strategy with LAB tokens. The yield protocol reported that some user vaults experienced a drawdown after a deal where the team bought a locked asset at a discount and tried to hedge the position with futures.
The USDC vault suffered the most. According to the project, the decrease could be about 15%. For SPYx and JitoSOL products, the losses appear smaller, around 12% and 9%. The team stated that users will be compensated, but there are no exact amounts or timelines yet.
Why the Strategy Failed
The deal was small relative to the size of the protocol. PiggyBank allocated about $100,000 to it, which at the time was about 2% of assets. But even this share led to a noticeable drawdown because the scheme depended on several conditions at once.
The idea was simple. The protocol buys locked LAB below market price and simultaneously opens a short position to reduce the risk of the asset falling. Such a setup can work in a liquid market, where futures hedging does not become too expensive.
With LAB, the opposite happened. According to the team, the market faced sharp moves, weak liquidity, and extremely unfavorable funding rates. Maintaining the hedge became more expensive than continuing the strategy, so the short position was closed.
Paper Profit Did Not Save the Vaults
The most painful moment is related to the sale restriction. The purchased LAB is now formally valued at about $1.35 million. This is much higher than the initial entry.
But these tokens cannot be sold until August 14. While the asset is locked, it does not help cover losses, restore liquidity, or stabilize the vaults.
That is why PiggyBank excluded this position from the calculation of net asset value. For users, this looks paradoxical: on paper, the asset is expensive, but in fact it is inaccessible. The drawdown did not arise from a complete devaluation of the position, but from the inability to use it here and now.
There Were Already Questions About LAB
The choice of asset became a separate reason for criticism. Even before this deal, LAB was mentioned in an investigation by ZachXBT, where the token was described as a high-risk example for retail investors.
The researcher pointed to opaque over-the-counter deals, private loans, changes in unlock conditions, and questionable market maker activity. In his assessment, most of the supply could be held by a limited group of insiders.
Special attention was drawn to the story with participants in the public sale through Legion. According to ZachXBT, the lock-up period for them was increased from three to nine months without investor consent. For the market, this looked like an additional signal that the token structure was not designed in favor of ordinary buyers.
Over-the-Counter Terms Increased Distrust
The investigation also mentioned offers for private buyers. Potential participants could be offered loans at 5% per month, the purchase of LAB at a large discount with a delayed unlock, as well as separate guaranteed deals.
For opinion leaders, according to ZachXBT, the terms could be even softer. They were allegedly offered up to an 80% discount on the condition of promotional publications.
This picture increased questions about the token. If different groups get access to the asset on different terms, and most of the supply is controlled by a narrow group of participants, the market becomes vulnerable to sharp moves and manipulation.
Users Demand Explanations
After the drawdown was revealed, PiggyBank faced criticism from the community. The main complaint is not only about the size of the loss, but about the choice of instrument itself.
Depositors want to understand why user funds ended up in a strategy with an asset that was already publicly considered controversial. For a yield protocol, this is a sensitive issue: users often perceive such products as passive and more predictable, although there may be complex market schemes inside.
The team explains the deal as part of a strategy for mid-cap tokens. But this argument does not remove the main risk. If the asset cannot be sold and the hedge becomes too expensive, the strategy stops fulfilling its main task.
Compensation Became the Main Question
PiggyBank promised payouts to affected users. But it is still unknown what the compensation amount will be, who exactly will be covered, and when the final schedule will appear.
Further reaction from depositors will depend on these details. A quick and clear plan can reduce tension. General statements without timelines, on the contrary, will increase distrust.
For the market, this case is important beyond a single platform. It shows that yield protocols must disclose in advance which assets are used in strategies and what restrictions apply to them. Especially when it comes to locked tokens and illiquid markets.
The Main Risk Was Liquidity
The PiggyBank scheme was based on the difference between the current asset price and futures. In large markets, such a strategy can be manageable. It is easier to open and maintain a hedge there, and the cost of funding usually does not change too sharply.
In a thin market, it is different. If liquidity disappears and the cost of maintaining the hedge rises, the short position itself begins to generate losses. As a result, the protocol is left with an asset that cannot be sold and with losses on the closed hedge.
This is the main lesson of the story. Yield cannot be assessed separately from liquidity, unlock periods, and the quality of the token itself.
What Happens Next?
The key date for PiggyBank is August 14. That is when the LAB unlock should begin, and the protocol will have the opportunity to understand how much this position is really worth after entering the market.
Until then, users will have to wait for the compensation plan. The protocol needs to explain not only the payout amounts, but also why a strategy with such a set of risks ended up in user products at all.
The main conclusion is simple. The drawdown did not arise from a typical market decline, but from a combination of locked LAB, weak liquidity, expensive hedging, and a controversial asset history. For DeFi, this is another reminder: high yield without clear risk management quickly becomes a problem for depositors.
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