A bank lends on your credit score because it can sue you. A smart contract can't sue anyone, so it holds your money hostage instead.
Deposit 1 ETH worth $3,000 into a lending protocol like Aave, and it will let you borrow around $2,000 in stablecoins. Not $3,000. Not $4,000. Less than you put in. That feels backwards until you notice what the protocol is missing: it doesn't know your name, your income, or your country, and it cannot take you to court.
— Educational, not financial advice.