Twyne attempts to build a "credit buffer" on top of underlying protocols like Aave and Euler, hedging against liquidation stampedes through ownership transfer rather than market sell-offs. Written by: Sanqing, Foresight News In the DeFi lending space, liquidation is the cornerstone of maintaining system solvency, but the frictional costs it generates, including liquidation penalties and DEX selling pressure, have consistently been a drain on capital efficiency. Furthermore, a significant amount of lending capacity in DeFi protocols remains idle, while borrowers are frequently forced out of the market due to volatility-induced liquidations. Recently, the Twyne team conducted a backtest using data from the Ethereum mainnet Aave V3 (WETH collateral, borrowing USDC/USDT). In 115 eligible liquidation cases, if users could utilize the Twyne mechanism to increase the liquidation threshold (LLTV) to 93%, theoretically, losses triggered by price volatility could be avoided in 110 cases, involving approximately $2.84 million. This data reveals a current pain point in DeFi lending: borrowers lack effective buffer mechanisms during extreme market conditions. Twyne's Mechanism: A Credit Buffer Layer Built on Aave and Euler Twyne is not an independent lending protocol, but rather a credit delegation layer built on top of existing lending markets (such as Euler and Aave). Its core logic is to change the liquidation logic of DeFi by reallocating idle "lending capacity" within the system. In traditional mechanisms like Aave and Euler, depositors' lending capacity is often idle if they don't borrow or borrow only a small amount. Traditional borrowers face a single, rigid liquidation threshold; once triggered, it causes a sell-off of assets on the DEX, resulting in a secondary shock to market prices. In contrast, Twyne allows credit liquidity providers (Credit-LPs) to deposit their deposit certificates from the underlying protocol into a credit vault, thus allowing the underlying lending protocol to treat the Twyne vault as a single position. Twyne, however, still records the asset balances of each depositor, thus productizing them. It supports "renting out" idle lending capacity to borrowers, who in turn receive a liquidation threshold higher than the underlying protocol. Its core innovation lies in Liquidation by Inheritance. When a user reaches the liquidation threshold, their position is not sold off by the market, but rather inherited by the liquidator (usually a well-funded Credit-LP). During the inheritance, the liquidator effectively acquires a potentially recoverable asset at a discount due to the price fluctuations of the underlying asset. This "discounted takeover" is the core economic incentive attracting LPs to provide credit. This takeover mechanism allows the liquidator to use its own funds to restore the health of its positions, avoiding market selling pressure and keeping valuable liquidity capital within the ecosystem. Risk and Return Trade-off: Twyne vs. Traditional Lending Using Twyne means that both lenders and borrowers are engaging in a risk game different from Aave and Euler. For borrowers, this is essentially a gamble where they trade the net value of their collateral for a chance to survive. In traditional agreements, liquidation typically manifests as partial forced liquidation, meaning that even after paying penalties, borrowers often retain some residual value. While twyne offers borrowers a liquidation threshold as high as 95%, it also introduces a 100% liquidation coefficient, meaning that once liquidation is triggered, all collateral will be seized. This mechanism forces borrowers to accept the cost of completely losing their residual equity in the event of failure, while pursuing extremely high volatility resistance. Simultaneously, depositors are undergoing a transformation from passively collecting interest as "landlords" to actively bearing principal risk in exchange for higher returns as "guarantors." [Image: Liquidation and Position Inheritance Diagram | Source: twyne Blog] Depositors under traditional agreements have a relatively passive role, with their principal within a relatively thick safety buffer. However, as credit providers on twyne, depositors earn extra income by renting out their idle credit, essentially providing implicit insurance for borrowers' leveraged behavior. In an ideal market environment, the successful execution of the inheritance mechanism allows credit providers to smoothly take over assets without loss. However, if the market experiences an extreme crash triggering a rollback and liquidation of the underlying protocol, the credit provider's principal will face the risk of being liquidated, with priority given to covering penalty shortfalls. Team Background and Funding Information twyne's core goal is to optimize credit efficiency within the DeFi ecosystem, attempting to address the long-standing problem of insufficient capital utilization in the lending market. Co-founder Daniele Pinna has an academic and industry background, previously serving as Head of Research and Investment at the Keom protocol and a general partner at Gnosis VC. He is a graduate of New York University. Previously, twyne completed its Pre-seed round of financing in June 2025. Euler Finance led the round, with participation from Daedalus and several angel investors in the DeFi sector. Twyne Funding Details | Image Source: Twyne Tweet Foresight News notes that Twyne commodifies idle credit from underlying protocols like Aave and Euler through a credit delegation mechanism. Essentially, it acts as a buffer for credit efficiency: hedging short-term fluctuations for borrowers and creating excess returns for depositors through "risk protection." Twyne is not a new competitor in the DeFi lending space.Instead, liquidity optimizers shift liquidation from market sell-offs to internal ownership transfers, alleviating DeFi's reliance on DEX liquidity. This tool is not recommended for high-leverage on-chain looping. The portion exceeding the underlying protocol's original liquidation threshold should be considered a "credit buffer" in extreme market conditions, not a means to increase leverage. Investors are advised to use this tool rationally.