A complaint about crypto is that it is too volatile to hold. If you can hold AND put at least some of it (up to your comfortable collateralization ratio) to work through lending it out (and borrowing against it), then that can offset the volatility.
What you do with the borrowed funds is up to you and there are an endless stream of possibilities. One example is to re-lend out again for additional interest. Interest arbitrage is a way to make your existing capital, work for you.
Lend BTC +1%, Borrow ETH -3%, Stake ETH +5%. 2% profit on the ETH and 1% on the BTC. Of course, you could then sell the profits for say, USDC, which you can then lend out again (~4%) or use to pay your bills or drug habit or whatever...
At the end of the day, this is what banks do with your funds. But instead of giving them the vast majority of the interest, why not take the interest yourself?
Larger picture, I personally see this as the opposite of credit cards, which are a blight on society [0]. People go into debt that they may or may not be able to pay off in the future. Why not reverse that and teach people to not spend more than they can pay off (collateralized loans)? You're punished with liquidations instead of stupid high interest rates.
[0] https://www.cnet.com/personal-finance/credit-cards/americans...