In a collateralized protocol like DAI or any of the lending platforms works is that if the backing drops, it takes the collateral needed to satisfy the loan, same as any margin call. So far these protocols are still working and there is plenty of liquidity in them.
The biggest issue with the conversion mechanism is that it takes 5% as a fee, so really, no you are not getting a dollar’s worth, you are getting .95 worth. I tried playing the conversion game as a trade until I realized that I was losing more than it was worth using it.