This might work inside the exchange, but doesn't work if you do a loan outside of the exchange. In DeFi apps you need an actual token to use. If you don't have

This might work inside the exchange, but doesn't work if you do a loan outside of the exchange. In DeFi apps you need an actual token to use. If you don't have a the token you can't do a transaction, and apps choose which tokens they support. So an exchange can create its own token, say it is backed 1:1 by BTC and lend that. But it isn't BTC so apps have to specifically opt into it. If they loan out the actual BTC they have in the exchange they can only loan out 100% of what they have (not more) because control and use of each BTC token is dictated by the public ledger which is out of their control. You can do other things (eg use the BTC as collateral for a dollar loan), but again you aren't lending BTC.