Liquidation by Inheritance
Traditional DeFi liquidations work like a fire sale - liquidators repay debt, seize collateral at a discount, and immediately sell it for profit. This creates selling pressure during market stress and requires sophisticated infrastructure to execute profitably.
Twyne introduces a fundamentally different approach: liquidation by inheritance. Instead of dismantling positions, we transfer them intact to new owners who can manage them back to health.
How Inheritance Works
When a position becomes liquidatable, any user with sufficient collateral can “inherit” it entirely. Let’s walk through the process:
Position Identification: Alice’s position becomes liquidatable with:
Collateral: 100 USDC
Debt: 95 USDC
Twyne LTV: 95% (exceeding her 90% threshold)
Inheritance Execution: Bob, who has 50 USDC of his own collateral, inherits Alice’s position
Post-Inheritance State: Bob now has:
Collateral: 150 USDC (his 50 + Alice’s 100)
Debt: 95 USDC
Twyne LTV: 63.3% (much healthier)
Profit Mechanism: Bob effectively acquired 100 USDC worth of collateral for 95 USDC of debt, netting 5 USDC in value
Economic Incentives for Inheritance
The inheritance model creates unique incentives that benefit the protocol:
For Liquidators:
No need for flash loans or DEX infrastructure
Can hold positions to profit from market recovery
Lower technical barriers to entry
Earn ongoing yield if they keep the position
For the Protocol:
Capital remains in the system
No market impact from forced selling
Broader participation in liquidations
More stable liquidation execution
For Credit LPs:
Positions are resolved before external liquidation
No exposure to DEX slippage or MEV
Maintained protocol solvency
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