Key Takeaways:
A $100,000 locked-token bet on LAB cascaded into double-digit vault drawdowns at DeFi yield protocol PiggyBank, drawing sharp criticism from on-chain investigator ZachXBT.
PiggyBank reported drawdowns of as much as 15% across three user vaults after a $100,000 basis trade in locked LAB tokens turned illiquid, the DeFi yield protocol said June 6. The position, entered one month ago at roughly 2% of the portfolio, involved purchasing locked LAB tokens at a discount through a Tier-1 OTC desk while hedging exposure with perpetual shorts.
"This little piggy went to the market and lost user assets gambling on blatant scam coins," ZachXBT, the on-chain investigator, said in an X post, linking to his earlier investigation into LAB's token supply. His May 2026 report alleged opaque OTC deals, unilateral vesting changes and insider control exceeding 95% of the token's supply — claims the project has not publicly refuted with verified on-chain data.
Violent price swings and deeply negative funding rates made the perpetual short hedge unsustainable, PiggyBank said. The protocol closed the short position to limit further downside, leaving it holding a locked LAB bag now valued at roughly $1.35 million at current prices. Because the position cannot be freely sold, PiggyBank excluded it from net asset value calculations until the first unlock on Aug. 14, triggering immediate drawdowns of 15% on the USDC vault, 12% on SPYx and 9% on JitoSOL.
How a locked OTC position became a vault problem
The core issue is a liquidity mismatch. A locked OTC position may show a paper profit when the token price rises, but it cannot be treated as liquid collateral when a strategy needs to rebalance. PiggyBank's hedge — designed to neutralize price risk — became too expensive to maintain as funding costs moved sharply against the strategy, the protocol said.
LAB had already been under pressure after a 70% flash crash from its all-time high, a move that raised concerns about thin liquidity and unstable market structure. Earlier wallet activity showed 100 million LAB tokens moving from Bitget-linked addresses, adding to questions about circulating supply and exchange-linked flows, per on-chain data.
PiggyBank markets itself as a yield platform offering extra returns on tokenized stocks and Solana-based assets. Its vaults had advertised strong APYs, making the sudden double-digit drawdowns particularly painful for depositors who expected relatively stable, hedged strategies. The protocol said it plans to publish a detailed report next week covering the OTC terms, position sizing, hedge execution and NAV treatment.
The incident highlights the risks in DeFi where protocols pursue higher yields through basis trades and OTC deals in volatile mid-cap tokens. While PiggyBank described the position as within its strategy scope, the outcome underscores the dangers of illiquidity and manipulation in tokens with concentrated supply and questionable fundamentals — a dynamic ZachXBT has repeatedly flagged across multiple projects.
This article is for informational purposes only and does not constitute investment advice.
