How It Works

Whenever a user supplies to a lending market, they’re issued an IOU token (aETH, eUSDC etc) that represents their position. These tokens unlock certain borrowing capacity against their collateral.

Twyne builds on top of established lending markets like Euler and AAVE, allowing lenders (Credit LPs) to deposit IOU tokens into a master Credit Vault, and delegate their unused credit power to borrowers for additional yield. Borrowers deposit their own IOU tokens into a Collateral Vault (one per borrower) on Twyne, allowing them to gain temporary access to lenders’ borrowing power - NOT their collateral.

There are two main ways that anyone can interact with Twyne - as a lender, borrower, or a combination of both. Below is the common user flow for each scenario:

1. Twyne Lender (Credit LP) - earns additional yield by fully delegating their borrowing power

   • Step 1: Lender deposits IOU tokens from the underlying lending market into Twyne’s Credit Vault (one vault storing all lender IOUs)

   • Step 2: Twyne uses the lender’s borrowing power to underwrite other borrowers’ loans

   • Step 3: Lender receives twyne_euler_USDC tokens

   • Step 4: Lender earns delegation yield on top of their base lending APY

2. Twyne Borrower - boosts their borrowing power to lever up or form a liquidation buffer

   • Step 1: Borrower deposits IOU tokens from the underlying lending market into Twyne’s Collateral Vault (one vault for each borrower)

   • Step 2: Twyne reserves unused borrowing power from the Credit Vault and temporarily adds an additional line of credit to the borrower’s account

   • Step 3: Borrower pays a siphoning rate in exchange for access to the lenders’ idle credit capacity

With Twyne, users from established DeFi markets can carve out new risk tranches in each lending pool, without introducing systemic risks to the underlying protocol.

While users deposit their IOU tokens on Twyne, their capital never leaves the underlying lending market (Euler, Aave): it simply gets put to work in more ways. The base layer is kept solvent, while risk-on users get access to an isolated sandbox that allows them to earn and/or borrow more.