The party loaning the security to the short seller makes a profit too as part of the loan. The only person potentially going to lose money is the short seller. The person loaning the security might end up getting the security back once it’s fallen a lot, or it might have risen, but they don’t really take any outrageous risk. Just the person who borrowed and sold takes the potential losses.

What is dubious about this mechanism? It seems fairly straight forward and short selling doesn’t even depress the price any more than someone simply selling it to the market. In fact since they have to buy it back later they first create sell pressure down then buy pressure up later.