Lending requires the ability to seize assets, and the ability to seize assets requires a legal system. There's no way around it. Without this lending can't work, because otherwise the borrower can just walk away with the money.
You can have assets on chain that can be used as collateral which can be liquidated if a loan isn't paid back. Additionally lending money is not only done so people can borrow from it. For example decentralized exchanges need a lot of liquidity in order to execute trades without very much slippage. You can provide liquidity to them and they will pay out transaction fees to you in exchange.
If doing so was useless, pawnshops wouldn't exist in real life. There is value in not having to sell something and later try to rebuy it.
Borrowing and lending is the primary and most important function of finance. It allows economic agents to trade future consumption for present consumption. Yet it is fundamentally impossible using blockchain technology.
a) expected to appreciate in value b) yield-bearing itself
and you don't want to sell it.