seems like rehypothecation is not permitted but even if eventually fractionally reserved the issuance originates from treasury debt rather than Fed Notes and bank lending.

Their origination will be a direct competitor to bank dollar ledger money.

For example, get a house loan in USDC, the interest rate is set by the bank and the creation of the USDC that the bank loans you is backed by US treasury debt rather than the banks balance sheet (which is backed by federal reserve bank reserves)