Basically, someone owes me around $1k, and I will repay you when I get paid the $1k (within the next month). In the meantime, I will be earning some interest in pirate's lending program to "hedge" against BTC price growth (well, it's not the most direct hedge, but whatever), and will pay you part of that interest (about half).
I apologize in advance if there is an obvious obvious answer to my question.
Why would someone loan you 250 btc to get paid 1 btc per day in interest when they can loan the funds directly to pirateat40 and make 2.5 btc per day?
Because pirate has 0 BTC storage available.
edit: Also, even if he had storage available, when the earlier depositors put in their money, you'd get squeezed out. In addition to this, diversification of risk is good: I hereby give pirateat40 full permission to pay out the money from my BTC lending account if I disappear, try to scam people, etc. and do not pay back the money and interest.
