How does "Interest" work in the Crypto world?

I've seen companies offering interest returns on coins (they are obviously currently going broke or facing a huge liquidity event at the moment) and other discussions around how there will be a new world order and fiat will be replaced by one "global coin" [insert the name of your favourite coin here].

And I'm sure there is a wiki for this, however..

In fiat land "paying interest" increases the supply of money, it is inflationary. how do you do it in a world where the supply of "new" money is fixed, limited or non existent.

If I own the only $1.00 USD in the world and I lend it to you and charge you 10% interest how are you going to repay me $1.10 USD in 12 months time when only $1 USD exists? even if I divide that $1.00 USD dollar into a 100 trillion tiny bits, me as the lender will still require 10 trillion bits back as interest.

I just cant see how it would ever work.