Piggybank TVL Down 49% After Losing Customer Funds on High-Risk $LAB Strategy

Piggybank, an emerging Solana DeFi app, has found itself in hot water after a high-risk yield strategy resulted in double-digit losses for depositors.

Citing declining trust and a lack of confidence in the team, Piggybank users are withdrawing their funds en masse, causing a 50% drop in protocol TVL.

While a post-mortem is reportedly still in the works, Piggybank has hinted that it may issue a compensation token for affected users.

Piggybank Buys Locked $LAB Using Customer Funds

Piggybank, a vault platform leveraging a variety of strategies to generate yield for its depositors, is under fire for what users are calling misuse of customer funds. In a June 6 announcement, Piggbank revealed that the protocol had previously taken a $100k position via an OTC deal in locked $LAB, intending to earn delta-neutral yield by shorting the token in perps markets.

Flagged in mid-May for market manipulation by blockchain detective zachxbt, $LAB rocketed over 1,970% in the space of 30D, rising from $1.23 to a peak of $25, liquidating millions of short positions along the way.

Amidst the volatility, Piggybank was forced to close its short, leaving the protocol with an unhedged $LAB position currently valued at over ~$1.3M. Given the illiquid nature of the position, Piggybank is excluding it from its NAV, resulting in significant drawdowns in the value of the depositor's proportionate share of the vault. 

Forced to stomach a 9-15% drop in their deposits, which include stablecoin vaults, Piggybank users have expressed frustration and disappointment with the protocol. Arguing that the team’s decision to enter an illiquid basis trade using manipulated tokens represented undue risk, commentators have called Piggybank’s strategy “extremely risky and silly”.

TVL Plummets 49.4% as Depositors Recoup Funds

Disappointed with the way their funds have been handled, depositors are withdrawing capital from Piggybank. DefiLlama data suggests Piggybank’s TVL has declined 49.4%, falling from $5.4M to $2.73M.

For many Solana DeFi users, the Piggybank scandal has only added to their mistrust and diminishing faith in the onchain economy. Between hacks, social engineering attacks, and now questionable capital management, Solana DeFi participants are reluctant to deploy their remaining capital onchain.

However, despite the sharp decline, the $LAB debacle could still end well for Piggybank depositors.

Piggybank Hints at Compensation Token

While Piggybank has removed the book value of its $LAB holdings from its current NAV due to illiquidity, the protocol still holds an estimated $1.3M in locked $LAB off a $100k investment. Unlocks are expected to begin on August 14, steadily returning liquid capital to the protocol. 

Piggybank is yet to release an official postmortem. However, communications from co-founder Pierromer suggests that Piggybank is considering airdropping a compensation token to affected users, which will accrue all profits from future $LAB sales and 50% rev share from the protocol.

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