If you have any experience in currency conversion, this is the equivalent to that. If you've travelled you've probably bought and sold currency at the airports. If you're in Saigon, you get the best USD->VND rates not at the airport, but by going to the gold dealers who have shops on the streets. You have to shop around to different stores to find the best rates. DeFi enables you to effectively be that conversion service (gold dealer). But instead of USD->VND, it is ETH->BTC (or whatever cryptos you want to provide liquidity for, or lend/borrow).
I personally find this a fascinating aspect of crypto that few understand or even care to look into. It goes far beyond just the gambling aspect of buy/hold and number go up (or down). It turns into real finance and an actual valid use case for crypto. Sure, crypto is re-inventing the same old stuff that people have been doing for ages, but at least now people globally have the ability to try out these mechanics, instead of just leaving it up to the bankers (or gold dealers) to get rich on your money. I love the concept of power to the people.
That said, I'm not here to give financial advice about how to get the best rates. There is nothing weird about that. I'm just saying they are out there if you want to look for them and learn more about it all. Aave is just an example of the fact that a single site has a $7.5b market. Of course, if there is a market that large, there is going to be many other sites than that, and it is all quite competitive.
If you're interested in this, please do your own research.
In DeFi, you give your money to a "smart" contract, which can of course still get hacked or what not. Always assess your risk/reward ratio.
Where does the yield come from? Collateralized lending/borrowing markets. People are still gambling with crypto and they can do it better, if they can borrow funds. It got a lot smaller after the collapse of FTX, but hasn't stopped at all.
Aave still has $7.5b locked up.