• Once your ETH is supplied, it enters a pool with other supplies and cannot be isolated.
• The Aave Protocol is an open source non-custodial set of contracts that behave according to the parameters coded in those contracts.
• You repay in the same asset you have borrowed, although some markets allow you to repay with collateral in a different asset. Example : swap ETH collateral and repay BTC.
• Interest is always accrued in the asset borrowed, see previous point for repaying.

Hello! I'll do my best to answer your questions:

Yes, you can see what happens to the collateral while it is locked up in Aave. Aave has a user interface where you can see your current borrowing position and the status of your collateral.

Aave uses the collateral only to secure the repayment of the loan. They do not use it for their own business purposes.

The loan must be repaid in the same currency that was borrowed. So in this case, the borrower would need to repay the 0.05 BTC loan in bitcoins.

The interest on the loan is also paid in the same currency that was borrowed. So for a 0.05 BTC loan, the interest would be paid in bitcoin. Aave does not offer alternative payment methods for interest payments.

I hope this helps answer your questions! Please let me know if you have any further questions or need clarification on anything.