On blockchain, the code is the law, for better or worse. It brings a lot of powerful advantages but certainly comes with some tradeoffs. Loans on DeFi today, tend to be overcollateralized, so that a loan's collateral can be liquidated by a "watcher" if the loan goes into default or is at risk of becoming undercollateralized.

Arbitration, insurance, etc. can also be recreated on-chain and already exist to some extent although it is quite early days still.