I think I can answer your questions.
Background/Disclaimer: I'm long crypto and have significant assets in Gemini's Earn program, a regulated variant of crypto lending that pays 8% on their stablecoin, GUSD.
I found Celsius and Yearn to be too sketchy/inscrutable to bother with[1], so I'm not going to defend anything about them, only the narrower claim that (some) DeFi liquidity pools are a non-Ponzi, sane way to earn returns in some conditions.
Liquidity pools [2] function as automatic market makers, using their assets to allow traders to trade between two cryptocurrencies. As a liquidity provider, you lock up two cryptos in return for a cut of the fees it takes from traders; your cut is proportional to how much liquidity you contributed. Those pools expose an interface to the Eth network that lets anyone put one of the cryptos in and take the other out, with a pre-determined formula for how it figures the exchange rate. Its profitability comes from the extent to which this exchange (after accounting for both pool fees and Eth network fees) gives a better deal to traders than their other alternatives (like centralized exchanges).
Like any market maker, you face the risk of "impermanent loss" from the shift in relative value of the cryptos, as market makers make standing buy/sell offers which look stupid when the market moves against them. There are also setup fees and all the usual risks associated with smartcontracts. When you consider how long you have to leave them in the pool to make a profit, and those fixed setup fees, plus the opportunity costs of lending through other providers with less volatility[4], the returns (3-100%) just about barely compensate you for the risk.
I experimented with them starting about three months ago and made a presentation, for which you're welcome to see the slides (slide 7 summarizes the downsides):
https://docs.google.com/presentation/d/1BrMMbL5vOzdnkaPVj5mO...
Contra bhouston's claim [3], these LPs don't require ETH to perpetually gain value: as long as traders continue to use the pool, ETH could stay stagnant or even fall significantly and they will still pay a return, though a long-term fall would induce a big impermanent loss (in an ETH-stablecoin pool) that would take a while for fees to compensate you for. (Edit: Although I suppose you could argue that people won't keep trading between ETH and other tokens unless that speculation, in the aggregate, is merited -- but it's not a simple matter of the pools only being profitable as some kind of derivative of ETH's value.)
[1] In the case of Celsius, largely because of this: https://prohashing.com/guides/earning-interest-on-crypto
[2] I've mainly worked with Uniswap v3; some of the details may vary slightly in other protocols.
[3] https://news.ycombinator.com/item?id=29498814
[4] For example, Gemini will lend out your GRT tokens at 6.4%, so that's your minimal return for this to be a good idea.