Users on DeFi platforms can access loans pegged in stablecoins by collateralizing their crypto holdings. This enables people access to the USD value of their crypto holdings without having to sell their assets.
When they are able to pay back the loan, their assets are returned to them. If their crypto assets increased in value during the loan period, they are ensured they will be able to keep those gains at the time the loan is paid back. In the event of a default, the collateralized assets are kept by the platform in lieu of repayment.
Loans are often overcollateralized, which means that the assets in collateral must exceed the amount desired in a loan. This makes crypto lending platforms relatively low risk.