Parrot UST Vaults Debt Recovery

The Party Parrot
2 min readMay 27, 2022

On May 9th Terra’s UST suffered a moderate depeg going from 1 to 0.8. The Parrot team issued a 24h notice for our users to exit their UST vaults before liquidation is activated for UST vaults. The majority of our users were able to unwind or exit completely at relatively good prices.

Unfortunately the depegging in the following days was so severe and swift, many vaults went under water. The value of the UST collateral deposited quickly became less than the outstanding PAI debt. As a result, there is no incentive to clear the debt.

While the PAI peg and other vaults weathered the downturn well, the UST vaults in particular had a 24h of grace period where the liquidators could not act, to give our users time to exit. Therefore, the system accrued a significant system debt (i.e. debt that will never be repaid or liquidated) over the course of the UST depeg.

  • A total of 2,544,399 PAI debt across the UST vaults was outstanding
  • At the current moment of writing, the UST price is $0.039 (May 27/2022)

One of the purposes of the PRT tokens is to backstop such systematic losses. However, the PRT liquidity is not sufficient to cover losses at this size. Rather, the team had deployed USDC from the treasury to backstop the protocol and clear the outstanding UST debt.

The UST system debt has now been repaid in full, and the protocol over-collateralized. The team will continue to monitor risks and improve the protocol health.

> Note: UST Vaults Dataset and report may be viewed on Kaggle: