No one will lend others on the internet unless the lender can make sure he won't lose money from the scammer.
It's hard to take legal action against people on the another side of this planet, that's why we can't just lend someone on the internet just by "verifying his identity".
Collateral is a measure to make sure if the borrower don't payback, the lender can still earn profit from the collateral.
Some people may don't understand why would someone pay 120% altcoin as collateral.
It's just like you're short of cash right now, and you happen to have a diamond that your boy/girfriend give you as gift.
You don't want to sell the diamond as it's valuable to you, so you take it as collateral to borrow some cash.
And when you payback, you can have the diamond back.
Now it comes to cryptocurrencies -
If you're in need of Bicoin, and you have altcoin that you think the price will grow and you don't want to sell it now
You can take the altcoin as collateral, when you payback, you get the altcoin back
If you don't, well, we just sell it and earn profit from it, that's all
