Liquidation mechanism
Why they matter
Twyne allows higher leverage loans — so it needs stronger safeguards. That’s why it uses a dual-layer liquidation system: Twyne steps in first. If that fails, the underlying lending market takes over.
How it works
If a borrower’s position becomes risky:
- Twyne monitors it and steps in before the underlying protocol does.
- Twyne allows standard liquidations — anyone can repay the borrower’s debt and claim their collateral, just like in any lending market.
- Twyne also introduces a new option: other users can inherit the position — taking on the debt and collateral into their own vault.
This is called liquidation by inheritance — it keeps value inside the system and lets idle borrowing power clean up risk without triggering harsh sell-offs.
What could happen
- Most liquidations happen early and cleanly through Twyne.
- If no one steps in, the base protocol (like Euler) liquidates the position using its usual rules.
- In that fallback case, Credit LPs may take a loss, as their delegated credit was backing the position.
- Other borrowers are never affected — all positions are isolated from each other.
We’re preparing a detailed report on the exact conditions under which Credit LPs might be impacted — coming soon.