what are lenders doing now with their funds? interest rates are bad nowadays for both $ and BTC

"Bad" is relative. You are still getting wildly high annualized interest rates compared to, say, a junk bond.
Still, there are a number of improvements to the system that could generate more income for everyone...
1. The option for a lender to extend expiration.
2. The option for a lender to lend at some fixed differential from the current flash rate.
3. The option for a borrower to keep borrowed btc/usd while closing a position.
4. The option for a borrower to partially borrowed usd/btc with a new swap.
5. Reinstating 4:1 margin.
6. Fixing the borrower margin limitation that is holding us to exactly tradeable balance on reduce position orders.
7. Fixing the borrower margin limitation that is holding us to exactly tradeable balance on borrowing usd/btc to reduce positions.
8. Minor annoyance: When taking BTC liquidity, the tab reverts to the USD tab.
9. Minor annoyance: When sorting margin open orders by price, the auto-refresh re-sorts the page by open date (this one is a real pain during active trading).
In general, the lending facility needs a bit of an upgrade. I've also noticed it to be buggy in that I've seen my positions exceed my total borrowed swaps, and I don't seem to be paying interest on positions when I reserve them, but only when I open a position with them (but who knows, because there is no swap interest accounting details, so it's impossible to reconcile fees).
I'm sure other people have other suggestions.