In the past minting dollar is backed by bulllion assets but today more fiat in countries are not back by the bullions that is why the inflation rates increase every year. Phisical products that I mean , when a crypto is a means of transaction for real products and services not money create money. When you sell a cloth and you accept HBD, it is indirectly you have backed up the HBD with phisical products.

Defi is creating new token with the collateral assets of bitcoin, eth, or existing token. It means money back up money not phisical products that back up money. Now, when bitcoin price falls, all the assets in defi will fall because the back up asset is bitcoin