This is simply insolvency, not fractional reserve.
With crypto, the "average" person gets to feel "in on it" in a way usually reserved for coked up Goldman associates. That is possibly not a good thing, as you're pointing out.
It’s only hidden in the sense that the definition of “decathect” is hidden. The definition isn’t “hidden”, I just haven’t looked into and learned its definition and i havent considered all the implications of its material interactions with the world yet.
This notion of “hidden” will not be solved by a coin were it to become ubiquitous. People would just have to learn a completely different set of complexities—many of which will actually be hidden by the grifters who take advantage of lack of regulations.
Much of (not all, but much) of this “hidden” argument rests on people who would just prefer simple barter/exchange—but they just don’t seem to understand the complexities that scale inevitably brings. Along with this is that they just don’t understand that crypto is not an answer to the scale complexity problems.
And if someone attempts to make a coin which addresses these complexities, oops, now we’re back to a complex, messy, and steep learning curve.
All of the grifts that we’ve seen throughout society’s history with finance will be repeated in the coin sphere and these people will sadly fall victim to these same grifts yet again.
Does our current financial system have problems? Absolutely. Does crypto solve them without reintroducing previously patched bugs? Nope. Not at all.
One of the first empires to use fiat currency was the Yuan dynasty, and it worked, because if your currency is backed by the mongols, you're absolutely going to act as if it makes sense, even if it seems crazy to you. The backing of money is not precious metals, nor currency, but rather force - a state can demand tax in it, and exact retribution if their taxes are not paid. The state could demand taxes in cowries, and people would collect cowries, because you are going to get imprisoned if you don't pay your tax.
The fiat-currency house of cards collapses when people think the state isn't going to be able to pay their bills and collect their dues. Cryptocurrencies are more like tulips. There's nothing behind the curtain - it's just a weird social eddy that's grown out of all proportion.
Edit: typo*
I’m not sure where my statement implied what you are assuming here. I think you may have your dogmatic blinders on.
Both tether, and crypto unrelated to tether are implicated in what I stated. That doesn’t make tether any less a result of libertarian ideology drawn to its conclusion.
As for my point, it's pretty simple: the market moves away from tether on its own just as libertarian ideology suggests it would.
Those who use tether are aware of the risks and are choosing to use it anyway, and if they lose money no one will bail them out.
I suggest you reevaluate what you think a libertarian market, where adults are treated like adults and not like children who are subordinate to high up regulators, evolves into.
And really, that's what you're implying: that certain people, should control other people, for their own good, and I find it bizarre that any one would advocate for that when you can see the extreme inequality and dysfunction this approach has produced in traditional finance.
I think it's holding to your belief - not to the belief in a free society - that requires having ideological blinkers on.
*I think it's a pretty good guess, based on the fact that Tether is still in business.