And while we are at it, can anyone explain to me what is driving the people who are borrowing coins this way? I've been trying to come up with a single reason what's in it for the borrowers, and still can't wrap my head around it. If you have to provide 200% of collateral, how does all that make sense?
Seriously, what's the point?
It makes sense if the collateral is volatile. Then borrowers pay interest to buy leverage. They can borrow stablecoin, use it buy more volatile stuff (Eth or token that is accepted as collateral) and then borrow even more. So 200% of collateral becomes actually 1:1.
If market goes up, borrowers get all their now much more valuable collateral back.
If the market crashes really hard, lenders have to bear the tail risk. Perhaps they supplied stablecoin and get back token that is now worthless.
For borrowers this is like a guaranteed stop. Remember, in traditional stock market, or FX market there is never a guaranteed stop, at least not for retail customers. In case of a flash crash, if you're leveraged, a broker will liquidate you at the cruelest possible price, and then may try to foreclose your home to get its money back. Not so in Defi, and this is seriously cool.