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 and redemption functions amid liquidity concerns. It has now opened a redemption contract offering 0.51 USDC per NUSD.
Why Boost took the hit
Lulo spreads deposits across multiple protocols on both Solana and Ethereum. Neutrl was one of those destinations. When NUSD’s value broke down, the loss had to land somewhere in Lulo’s structure.
Under the platform’s design, it landed on Boost. The resulting drawdown of approximately 6.4% reflects Neutrl’s share of the overall allocation, not the full 49% NUSD haircut.
Lulo has historically held over $100 million in Protected deposits. Those depositors were shielded this time. The gap between Boost and Protected yields runs from roughly 2.5 to nearly 4 percentage points a year. A drawdown of approximately 6.4% could erase well more than a year’s worth of that premium.
Background: Neutrl’s slide
NUSD once reached a peak of around $230 million in assets under management. Its total value locked declined from that level over time, before the strategy losses and liquidity squeeze took hold.
The suspension of minting and redemptions was a clear warning sign. The 0.51 USDC redemption offer is effectively Neutrl putting a number on how much backing it can actually return.
What this means for DeFi yield products
For Lulo, this episode is both a setback and a proof of concept. The setback is obvious: Boost users lost money. The proof of concept is that the risk allocation worked exactly as described, with losses contained to the tier that signed up to absorb them.
Lulo’s peer-to-peer protection model, where higher-yielding capital backstops conservative capital, gave a clear answer on day one of a real incident.
Protocols that integrate with aggregators also face more scrutiny. When one underlying venue stumbles, every platform routing deposits into it inherits the problem. Neutrl’s trouble reached Lulo’s users across chains, showing how risk travels through DeFi’s plumbing.
What to watch next: how many NUSD holders accept the 0.51 USDC redemption, whether Lulo adjusts its allocation framework or Boost pricing, and whether Boost deposits shrink as users reassess the trade.
Disclosure: This article was edited by Estefano Gomez. For more information on how we create and review content, see our Editorial Policy.