I don’t think it’s that bad. With an open ledger, we can audit custodian holdings every 10 minutes. If they try to fractionally reserve, we’ll know immediately. There will always be a market for international final settlement, which can support the miners once new coins dry up.
Discussion
It took multiple years to figure out ftx was fractional. They coulda done it for much longer if they weren't so stupid
This is a lesson that has to be relearned every generation of new bitcoiners until it sinks in. Bitcoin bank runs will happen and people will get rugged. Same dynamic as gold except we are far more free to hide our wealth from governments and other bad actors, which gives me a tremendous sense of hope.
Onchain holdings can be audited, but issued units cannot. How exactly are you going to find out immediately?