I agree this has to happen on layer 2. No way everyone is holding base layer.

There’s no problem with having credit and fractional reserve banking in my mind- parallel to a BTC system. Risk is necessary for investment and growth and credit is our way to speculate on the future. Also, if fractional reserve banking keeps fees low then people will take risks and use it.

The issue is the bailouts with non-existent money to banks that are so big they are systematically important. Having an effective BTC transactional layer prevents over-centralization and keeps banks small, specialized and local- as they should be.