Alice offers to lend Bob USDT. Let's say $1,000 for one year, 10% interest, 50% LTV,

Bob's "initial loan amount" then is $1,100 ($1,000 principal amount + $100 in interest), so he then sends $2,200 worth of BTC to a multisig contract ($1.100 / 50% = $2,200). That BTC is locked until either Alice releases it to Bob (after he repays the $1,100), or until there is forced liquidation, where Alice gets paid the amount owed her, the $1,100, and HodlHodl then receives the balance. In that forced liquidation scenario, Hodl Hodl then subtracts a 5% liquidation fee (5% of the $1,100 -- initial loan amount, or $55) and forwards the remaining balance of BTC to Bob.

Bob has multiple chances to avoid forced liquidation (3 margin calls, the first at 75% LTV, the next at 80% LTV, and the 3rd margin call at 85% LTV). Forced liquidation occurs at 90% LTV.

So there's no lending of Bob's bitcoin. That bitcoin gets locked into a bitcoin multisig contract until either repayment by Bob results in Alice releasing the bitcoin back to Bob, or liquidation occurs.

Hope this helps to explain it. The margin call page on Lend at HodlHodl's website provides more complete details.