Except you can't get usable fiat out?

There needs to be an endpoint distributor of physical cash, SWIFT, or wire transfers of real fiat and those end points are subject to regulation just like localbitcoins or ATM machines are subject to regulation.

Can you explain how a decenteralized exchange provides USD?

abstracted IOU "stable-tokens" like Tether are NOT USD, see the case of Liberty Reserve [1] or [2]

[1] https://en.wikipedia.org/wiki/Liberty_Reserve

[2] https://hackernoon.com/the-curious-tale-of-tethers-6b0031eea...

https://medium.com/@bitfinexed/are-fraudulent-tethers-being-...