PiggyBank Takes a 15% NAV Hit After Unwinding a Failed LAB Hedge Trade

TLDR:

• PiggyBank closed its LAB hedge after negative funding rates made the strategy too costly to maintain.
• The protocol expects NAV declines of 15% for USDC, 12% for SPYx, and 9% for JitoSOL.
• Locked LAB tokens valued at $1.35 million will remain excluded from NAV until the August unlock.
• ZachXBT criticized the trade and renewed concerns over LAB token supply concentration claims.

PiggyBank reported expected net asset value (NAV) drawdowns of up to 15% after unwinding a hedged position tied to the LAB token.

The protocol said it closed the hedge after extreme volatility, declining liquidity, and deeply negative funding rates made the strategy unsustainable.

According to a statement released by the team, the position originated from a basis trade executed last month. PiggyBank purchased locked LAB tokens through an over-the-counter transaction for approximately $100,000 while simultaneously shorting LAB perpetual futures contracts.

The protocol said the trade initially represented about 2% of portfolio assets and was designed to reduce directional market exposure.

However, changing market conditions increased the cost of maintaining the hedge and ultimately forced its closure.

PiggyBank said it will exclude its locked LAB holdings from NAV calculations until the first token unlock on August 14.

The team cited insufficient liquidity and said the approach represents the fairest method for managing user liquidity during the period.

Current NAV estimates indicate an approximate 15% decline for the USDC vault, a 12% decline for SPYx, and a 9% decline for JitoSOL. PiggyBank said it plans to publish a detailed report and follow-up handling plan next week.

Market Conditions Forced Closure of Hedged Position

PiggyBank said the strategy combined discounted purchases of locked LAB tokens with perpetual futures shorts. The structure aimed to capture value from the discount while limiting price risk.

The protocol said LAB later experienced severe market manipulation and worsening liquidity conditions. Trading conditions became increasingly difficult as liquidity in the token market deteriorated.

PiggyBank also reported deeply negative funding rates on LAB perpetual contracts. Those funding payments increased hedge maintenance costs and reduced the strategy’s effectiveness.

According to the team, maintaining the hedge became economically impractical under those conditions. The protocol ultimately chose to close the short position to limit additional downside exposure.

PiggyBank said the locked LAB position currently carries an estimated value of $1.35 million. Despite that valuation, the holdings will remain excluded from NAV calculations until the scheduled unlock.

The team said conditions surrounding the position remain subject to change. It added that excluding the holdings provides a transparent framework for current portfolio reporting.

NAV Declines Draw Scrutiny From Market Observers

The reported NAV reductions affected multiple PiggyBank products. The largest projected decline was recorded in the protocol’s USDC vault.

The losses also extended to SPYx and JitoSOL products. PiggyBank attributed those declines to the effects of unwinding the LAB-related hedge.

The protocol acknowledged what it described as a serious error in the basis trade. The statement outlined the circumstances that contributed to the outcome.

Meanwhile, on-chain investigator ZachXBT publicly criticized PiggyBank’s involvement with LAB. His comments focused on the protocol’s exposure to the token.

ZachXBT previously alleged that insiders controlled more than 95% of LAB’s supply. PiggyBank has not announced any changes to the August unlock schedule and said further details will be provided in its upcoming report.

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