As another commented pointed out, the collateral is seized. Default risk is very low because there is more collateral than debt. There's also special loans wit

As another commented pointed out, the collateral is seized. Default risk is very low because there is more collateral than debt. There's also special loans with 0% collateralization which amazingly have even less risk than the type described above. Those are called flash loans and take advantage of ethereum behavior that allows mini-rollbacks in the time before a block is finalized. So you borrow millions of dollars in the span of about ten seconds, and if it doesn't get payed back then it gets reverted. Very powerful if you're smart enough to use it properly.