PiggyBank has disclosed that a basis trading strategy tied to locked LAB tokens caused losses for depositors after alleged market manipulation disrupted its hedge.
PiggyBank says the LAB hedge became unsustainable
The DeFi yield protocol said its USDC vault now faces an estimated 15% drawdown, while its SPYx and JitoSOL products are expected to fall by about 12% and 9%, respectively. The project released a drawdown report on June 10 outlining how the position affected its vaults.
PiggyBank said it allocated around $100,000, equal to roughly 2% of its assets at the time, to a basis trade involving locked LAB tokens. The strategy involved buying the tokens through an OTC channel at a discount and opening a perpetual short position as a hedge.
According to the report, LAB later experienced “violent manipulation,” thin liquidity, and deeply negative funding rates. PiggyBank said those conditions made keeping the short position “economically irrational,” prompting the protocol to close the hedge to reduce further losses.
The locked LAB tokens are valued at about $1.35 million at market prices, more than 13 times the entry value. However, PiggyBank excluded the position from net asset value calculations because the tokens cannot be sold before the first unlock on August 14.
ZachXBT had warned about the LAB structure
The LAB exposure drew scrutiny because on-chain investigator ZachXBT had raised concerns about the token weeks earlier. In a May 14 analysis, he described LAB as a case study in “retail extraction” and pointed to opaque loans, OTC transactions, vesting changes, and market-making activity.
ZachXBT said more than 95% of the LAB supply was controlled by insiders. He identified the founders as Vova Sadkov and a co-founder known as Mark, and said the token launched through a Token Generation Event in October 2025.
His findings also said the LAB team changed the cliff for Legion public sale participants from three months to nine months without consent. He linked wallets used for LAB loan contracts to public buybacks and fund flows reaching founder-linked exchange accounts on Bybit and Gate.
According to ZachXBT, OTC offers had circulated since January 2026, including loans, discounted purchases, and KOL allocations for promotions. He connected the LAB infrastructure to a market-maker pattern he had previously associated with RAVE, RIVER, SIREN, MYX, and SKYAI.
Compensation pledge follows DeFi backlash
After PiggyBank disclosed the issue on June 6, ZachXBT said user assets had been gambled on “blatant scam coins.” The criticism triggered concern among depositors and DeFi observers.
PiggyBank has pledged compensation for users but has not specified the total losses, payment amounts, or timeline. The episode has renewed focus on strategy disclosure, illiquid token risk, and funding-rate exposure in DeFi vaults.
