If you take a loan in BTC and post the same amount of BTC as collateral, the payoff from such a "loan" is the return on BTC during the holding period minus the rate of interest charged times the principal (or collateral, since it's the same amount). In finance, this called a "swap", and in a swap the principal is not actually exchanged because it's inconsequential, it's only used to calculate the amounts due. In short, what you describe is not loan, but a swap, which is a different kind of financial product.

If you know all that, I think you'll probably understand how yield farming works better than I!