Users

Two crucial entities define the Twyne protocol: lenders (referred to as Credit LPs) that delegate their borrowing power, and borrowers.

Whereas a specific user can in theory occupy a combination of these roles, we will initially describe them in their purest form.

Credit LPs (More yield)

A Credit LP (CLP) is a lending market user that currently lends their assets in exchange for yield but does not borrow against them. On Twyne, CLPs can choose to stake their lending market receipt tokens (e.g., eUSDC, aETH) and rent out their assets’ unused borrowing power to others.

By doing so, the CLP effectively becomes the underwriter for another borrower’s loan and takes on extra risk — for which they charge an additional interest rate to the borrower.

We term this the CLP supply rate, or the rate at which a borrower’s collateral is charged by the CLP for reserving their borrowing power.

By using Twyne, Credit LPs earn additional yield for delegating their idle borrowing capacity. As a result, they experience a combined lending rate which is the sum of the CLP supply rate plus the underlying lending market’s asset rate.

We expand on the Credit Supply Rate [here].

Whereas the gross CLP rate is identical to the utilization-based rate IR(u) defined in the Credit Supply Rate equation, the net rate r_net_LP perceived will be the ratio between the gross payment and the total CLP assets supplied:

r_net_LP = (CLP · IR(u)) / C_total_LP = u · IR(u)

Delegating credit capacity expands the CLPs’ risk surface relative to idle lending. To protect CLP collateral, Twyne acts as the first-order liquidator so that the borrower’s position — boosted by CLP collateral — is either resolved or made healthy before becoming liquidatable on the underlying protocol.

In cases of extreme price volatility and swift downward market pressure, there might be situations where nobody has inherited a risky debt or triggered a liquidation on Twyne. In such a scenario, the underlying protocol kicks in as the fallback liquidator, which could incur losses for the Credit LP.

More on CLP’s added risk surface in the [Liquidation mechanism] section.

Borrowers (More borrowing power)

A borrower on Twyne is a user who taps into the CLPs’ delegated borrowing power. They use Twyne to increase their borrowing capacity beyond what the underlying lending market would allow them on their own collateral.

Borrowers pay:

• The underlying borrow rate from the lending market, plus
• An additional siphoning fee (i.e., the CLP supply rate) to compensate the Credit LPs for using their borrowing power.

Borrowers benefit by unlocking more leverage, while CLPs earn additional yield — but the combined setup introduces new risk dynamics.

We expand on the CLP supply rate in the [Borrowers section].

As with the CLPs, borrowers’ positions are protected by Twyne’s first-order liquidators. If no liquidation happens on Twyne during a market downturn, the underlying protocol’s liquidation mechanisms activate as a fallback, potentially resulting in losses for both the borrower and the Credit LPs.

More details on this dynamic are covered in the [Liquidation mechanism] section.