ZeFi converts your deposits to stablecoins (a stable virtual currency pegged to USD) and lends it out to over-collateralized borrowers at higher interest rates over blockchain-enabled lending protocols, such as Compound and dYdX. These are open-source and highly audited smart contracts built on Ethereum Blockchain.
Those protocols work pretty muck like LendingClub, but on the blockchain. Some users send money to a DeFi lending project to contribute to liquidity pools. Other users borrow money from that pool. Interest rates go up and down depending on supply and demand.