A decentralized derivatives protocol can lend its credit balance (and fractions of its stablecoin balance, if it exists at all at the point when a position is opened) to a decentralized liquidity pool when there is demand by end users to open a position (ex. a user can deposit frax to buy options/forwards/interest rate swaps/etc against a liquidity pool while the exchange allows the pool to borrow collateral into existence [and destroyed when the users position is closed, modulo the type of derivative the user bought]) without the liquidity pool providing all or any the collateral to back the position if it ends up moving against the liquidity pools exposure.
Such a protocol can also issue debt against their stablecoin flows in accordance the protocol code, that can also float on a dex at a premium or a discount and also be used as collateral in other decentralized stable coins that allow for differing collateral underlying (like some decentralized credit/debt backed stablecoins out there now, or allow themselves to be collateralized by any combination of ERC20 underlying).