I never understood how would anyone use an altcoin for collateral, i mean if you want 1 btc loan but you have like 100 ltc, why not sell the ltc yourself instead of asking for the loan?
Its because people believe in the altcoins,and want to hold it, incase they think a price increase will happen.
That can happen with bitcoins aswell plus people only want "stable" altcoins like dogecoin or litecoin