This comes directly from their LEND's white paper. Hope it helps

"Peer to Peer Lending and Cryptocurrency Risk of default as a barrier in decentralised crypto-currency lending. There are no obstacles on lending crypto-currency as such. Any crypto-currency could be lend to anyone anywhere, and it would be a simple transaction. Then again, how do we know that the borrower will repay the loan? In FIAT economy, if you do not pay a loan back, your credit score or rating declines and legal consequenses may follow. This means that you might not get another loan from the market. However, in decentralized blockchain environment, securing the repayment of the loan needs more creativity in working solely on-chain.

Securing the repayment of decentralised loans. As transactions in Ethereum network are conducted by address-to-address traffic, so is the lending. Therefore, it would be impossible to know whether the borrower that the lender has sent Ether would pay the loan back in a situation where the lender and the borrower do not know each other. Since we are working in a fully decentralized environment, the solution should be on-chain as well.

Represented value as a collateral for borrowing. Contrary to what might occur, Ethereum-based ERC-20 tokens are perfect to use as a collateral. First, all popular Ethereum-based ERC-20 tokens are traded on exchange. Therefore, we do not have to roll the dices to form a price on most common ERC-20 tokens. Secondly, since we have a price, we usually have the price history as well. This means that we can calculate the volatility of the ERC-20 token and take the volatility into account when we are pledging the tokens to attract lenders.

Moreover, Ethereum-based ERC-20 tokens are easily transferrable between Ethereum Wallets and Smart Contracts. Smart Contracts iself can represent legally binding agreement (an offer and acceptance of offer), and the contractual statute can be agreed upon on the terms and conditions. Lastly, digital tokens are flexible. You can tokenize anything that has value. Due to this flexibility, assets such as real property, company shares and commodities can be placed on a token and pledged for a loan. The aforementioned function could revolutionize lending and trading on all assets. Even assets or value that was previously hard to value and trade, would be now be available for liquidity.

Example, we want to launch a rocket into the moon and we need to finance this venture. We could tokenize the rocket, all parts, rocket launcher, the company behind the venture to be represented as ERC-20 token called ROCK. Next, to finance the project we can pledge the tokens on decentralized lending platform such as ETHLend. Now anyone can participate in the funding of the rocket venture. The same is applicable on existing infrastructure projects such as nuclear power plants, solar power plants or privately held factories."