Its very cool, technically.
My biggest issue with a lot of the defi lending stuff is that it attempts to mix the on-chain concept of immutable trust, with the human and legal-level trust necessary to facilitate lending. When I borrow money from a bank, its being lent to a person, who can be tracked down, brought to court, assets repossessed, and all of this while being horrific for the person going through it, is necessary to increase the probability of loan repayment. Increasing the probability of loan repayment is directly correlative with increasing the amount of money capable of being lent out, and the frequency of loans.
In other words; the US financial system actually consists of two inextricable systems: the financial system, and the legal system. One system is on the ledger, the other isn't.
The way some lending platforms have gotten around this is to require 100% collateralization of the loan amount, with in-kind assets. There's some mildly interesting reasons why this is useful, primarily tax related, but it certainly looks quite different from how most loans work in traditional finance systems; examples, a SoFi personal loan is of-course not 100% collateralized; a mortgage is more-or-less a 100% collateralized loan but not with in-kind assets; for very high-wealth borrowers you oftentimes see loans that are structured like personal loans but 100% collateralized against physical assets the individual owns (eg house) or corporate shares; but "I'll give you $100, you give me $100, and I'll pay you back $105 in a year" just isn't common.
To be clear: I think on-chain verification of off-chain trust/identities in web3 will happen eventually. It'll piss off a lot of crypto die-hards. It'll lead to a lot of anti-crypto chads screaming about "whats the point"; and they have a valid argument. But when viewed through the lens of a value addition which enables greater access to more traditional financial vehicles and regulation, without compromising the original promise of more equitable access to financial systems, it could be a best case of both worlds.
In other words; it'd be like having access to the core American ACH system, but global, but maybe some institutions won't do business with you (or your wallet) unless that wallet has a verified real identity tied to it. You can still transact with people who don't require such a verification; which is more than you can say for the current system, and has been the source of tremendous socioeconomic hardship for massive portions of the world.