PiggyBank unwinds LAB hedge, vaults face up to 15% NAV…

PiggyBank has closed its LAB hedge position after extreme volatility and negative funding rates rendered it unsustainable, leaving users across three vaults facing material drawdowns. The protocol disclosed losses of approximately 15% for its USDC vault, 12% for SPYx, and 9% for JitoSOL — and has excluded its locked LAB holdings from net asset value calculations until August unlocks.

Why it matters

The disclosure puts a spotlight on a structural risk that DeFi lending protocols routinely understate: hedging against a protocol's own native token introduces circular exposure. When the hedge unwinds under stress, the losses land directly on depositors rather than the protocol treasury. ZachXBT publicly criticised PiggyBank's strategy, arguing it exposed user funds to a highly speculative asset — a charge that carries weight given his track record identifying DeFi risk before it becomes systemic.

The decision to exclude locked LAB from NAV until August also raises a transparency question: users calculating their real exposure between now and the unlock date are working with an incomplete picture of vault health.

Market impact

For DeFi depositors broadly, this is a reminder that yield-bearing vaults carrying native-token hedges embed speculative risk that doesn't always surface in headline APY figures. The 9–15% drawdown range across PiggyBank's vaults is significant enough to trigger redemption pressure, and any further LAB volatility before August could widen losses further. Investors in similar structured DeFi products should audit whether their vault's hedge book carries comparable circular-token exposure.