Lulo reports 6.4% drawdown on Boost deposits from Neutrl exposure

Lulo’s Boost depositors just learned what “first-loss capital” means in practice. The yield platform reported a drawdown of approximately 6.4% on Boost deposits, tied to its exposure to Neutrl Finance. Protected deposits were not affected, according to Lulo. What happened at Lulo and Neutrl Lulo runs two USDC deposit products, called Protected and Boost. Boost depositors earn the higher yield, quoted at 6.5% to 7.88% APY. Protected depositors earn around 4%. In exchange for that extra yield, Boost capital sits in front of Protected capital and absorbs losses when an integrated protocol runs into trouble. This time, the trouble came from Neutrl Finance. Neutrl is a synthetic dollar protocol built on Ethereum. Its token, NUSD, is a collateralized synthetic dollar, meaning it aims to hold a dollar value through backing assets and trading strategies rather than plain cash in a bank. Neutrl relied on delta-neutral strategies. In simple terms, these trades try to earn yield while hedging away price direction, so the position should not care whether markets go up or down. Neutrl suffered losses on those strategies, which impaired its liquidity. The protocol had already suspended minting a...