> You can take an interest free loan out against your Ethereum
Well, you do have to pay to take out a loan. Closing a loan is free, and redeeming LUSD for ETH (if it's not your loan) costs _at least_ 0.5%. And being liquidated costs you money (10%?) as well I guess.
> What happens if many people do that and never repay the loan?
Nothing? What do you think is supposed to happen?
> you are suddenly dealing with real like risk that cannot be ignored.
The only risk I know of is a cascade. If a trove drops below 110% because the ETH price drops, and someone liquidates the trove and gets the ETH at a 10% discount, and then _sells_ the ETH, the price drops even more causing other troves to be liquidated, etc.