1) Alice borrows 1 BTC from Bob under contract
2) Alice now has 1 BTC asset and promise to pay Bob 1 BTC
3) Alice sells 1 BTC to Carol for fiat
4) Alice now has fiat and a promise to pay Bob 1 BTC

If Alice is lucky:

5) The BTC price crashes
6) Alice uses the fiat to buy 1 BTC at a low price
7) Alice now has 1 BTC asset, 1 BTC promise to pay Bob, and some leftover fiat
8) Alice repays Bob the 1 BTC making good on the contract
9) Alice keeps the leftover fiat.

If Alice is unlucky:

5) The BTC price soars
6) Bob gets concerned about Alice's ability to pay him back his 1 BTC
7) Bob 'margin calls' Alice under the terms of the contract
8) Alice is forced to buy the 1 BTC at the higher price.
9) Alice now has 1 BTC, a promise to pay Bob 1 BTC and less fiat then when she started
10) Alice repays Bob the 1 BTC making good on the contract
11) Alice is left with less fiat than when she started.