What are USD pegged loans?
Even though Ethereum and cryptocurrencies are volatile in general, that does not mean that the lender and the borrower needs to bear the volatility. The volatility of the loan currency (Ethereum) becomes an issue when the borrower wants to repay the loan with FIAT-earned income. To avoid this issue, the borrower can use a FIAT currency such as USD or EUR as a basis for the loan (this is called currency pegging).
Using currency such as USD means that the borrower could example borrow 100 USD worth of Ethereum and repay 100 USD worth of Ethereum plus interest. This means that even if the Ethereum price increases in value, the borrower does not bear the volatility since the borrower is repaying the loan tied against non-volatile currency.
USD-pegged loans are suitable when the borrower is repaying the loan with FIAT (USD) earned income. With USD-pegged loans the borrower does not suffer from volatility of Ethereum.
Secondly, some traders might prefer USD-pegged loans to gain more against USD instead of Satoshis or Wei.
When the lender chooses to fund a USD based loan it does not result in loss when in case the Ethereum price increases and the lender receives less Ethereum from the borrower. In these occasion the lender receives the same value of Ethereum plus the gained interest since the value of the Ethereum increased. The situation is only seen as an opportunity loss, since in these price increases the lender would have gained more than anticipated from the interest of the loan.
However, one should mind that even though the lender might be a holder of Ethereum, it does not always mean that the Ethereum price would go up. On the contrary, lending might be a perfect tool for hedging Ethereum. Additionally, lending could be seen as diversification in Ethereum investments since a savvy investor could use part of the Ethereum portfolio for lending and greater part for holding.
More importantly, not all lenders are Ethereum holders. ETHLend is used additionally by lenders from the FIAT economy that want to access the opportunities of global lending market. For this aim, Ethereum is a perfect way to fund within seconds loans from different parts of the world. Such FIAT economy based lender is mainly interested in deriving profit in FIAT such as USD than Ethereum.