What if prices plummet? Doesn't that put the lender at a disadvantage? For example, I lend out 1btc and prices dropped to $10 each from current prices. Nothing I can do about it since I don't have the 1btc but it's with a borrower. Right?

There are two sides of a coin, consider your point on one side and the other for lenders.

Edit: We are dealing with crypto and not it's fiat equivalent here. That's a fact we should really keep in mind.