DeFi loans are over-collatoralized usually by 1.5-2x.

If you want to borrow $100k, you put up $200k in collateral.

Sorry I don't get it. Why would you lock up 200k in order to borrow 100k? Why not just use part of the 200k you already have?!

If you believe that the value of Bitcoin is going to go up, it makes sense to lock is as a collateral and spend the borrowed fiat instead of selling the Bitcoins.

Is there a part of the system that keeps working even if the value of bitcoin stops (being believed to keep) going up all the time?

If ETH or some other new token takes more and more mindshare from btc isn’t that a big inflationary pressure on the crypto ecosystem as a whole? More tokens = less valuable tokens.

At some point buy the dip will turn into cash out.

If the value of Bitcoin stops going up, sooner or later your debt grows larger than the amount you were allowed to borrow and your collateral gets liquidated by someone who implemented the fastest liquidator bot.

https://docs.aave.com/developers/guides/liquidations

To lever gains. Now you can "own" 300k worth of bitcoin gains with only 200k worth of bitcoins. Of course the downside is that loses are levered too.

Different tax treatment. Locking up to buy something with the loan doesn't expose you to gains.

To retain the price exposure of the asset worth 200k while avoiding selling or spending it.

You gotta pay the upline!