What happens with these loans if the recipient defaults on repayment?
Why don't I use my $100 directly instead?
There are a few cases outside the blockchain where you get loans although you already have the cash (e.g. for tax reasons), but I don't understand how it makes financial sense in this case, if everything happens on the blockchain with no other incentive.
Maybe another direct question would be: as a lender, for which risk are you getting paid some interest?
Because it's not $100 in dollars, but $100 worth of eth or something else. Borrowed dollars can be used to buy something else, hoping the price of that something rises.
>as a lender, for which risk are you getting paid some interest?
It's theoretically possible for prices to fall fast enough so that the liquidated value of the collateral isn't enough to pay the debt. I don't think rewards are risk adjusted at all. More like same people that could provide dollars are likely to speculate on cryptocurrencies themselves, or take part in more risky and active yield generating schemes.
There's also special loans with 0% collateralization which amazingly have even less risk than the type described above. Those are called flash loans and take advantage of ethereum behavior that allows mini-rollbacks in the time before a block is finalized. So you borrow millions of dollars in the span of about ten seconds, and if it doesn't get payed back then it gets reverted. Very powerful if you're smart enough to use it properly.