Liquid is a "trust someone" solution. There are precautions to avoid targeting particular users (confidential amounts and assets) similar to ecash, but it's still a custodian. We can certainly argue it's a "good enough" custodian, given the number, reputation and legal consequences of failure, but it's still a custodian.

I know this isn't the conversation you're having, but this just made a question come to mind... Legally speaking, when you peg into something like liquid are you selling your Bitcoin for L-BTC or is L-BTC your receipt for them custodying your BTC. I guess the same question could be asked about Cashu/fedi? Or maybe we don't have legal frameworks for these things yet (most likely I guess)

Depends on the country, but in Slovakia, if the unit is the same, then it's not selling, just changing form. That is one of the best use-cases for Monero in entrepreneurship. Say you want to have a Bitcoin reserve in a company, but also want to pay suppliers with some crypto. Sale is a taxable event that goes to weighted average and triggers capital gains. So actually buying Monero and spending it at the same moment is a tax free event (buy and sale price are the same, minus the fees), but doing it with anything Bitcoin (does not matter if Cashu/fedi/lightning) would be taxable event. Of course you can also use stablecoins.

I like to think of ecash/liquid as stablecoins pegged to bitcoin rather than custodians. They succeed/fail on the same basis, but with the huge advantage that issuers can fully settle with eachother in the backend over the lightning or base layer network, and can have shared custody of reserves accross jurisdictions.