I agree that crypto doesn't have a solid financial system backing it and that is necessary to be a replacement for the current one.
I'm not a huge crypto-believer, but I do think your criticism here is ultimately not really a criticism of crypto itself, but the financial system around it. Plenty of real-world currency suffers from the same lack of solid financial system. For example, I imagine you would be hard-pressed to find the same guarantees from banks dealing with venezuelan bolivars.
That being said, I think the best use case for crypto is still not one where every single person runs their own wallet. Rather, most people would use depository institutions who could run settlement on the blockchain. The main contribution and innovation is removal of red tape that is typically incurred when one wants to become a depository institution (mainly obtuse technical interfaces, slow clearing houses, etc).