I think something that this community struggles with is the reality of human nature. I think its because Bitcoin tends to attract more technical, libertarian-minded, individualistic people.

Don't get me wrong, I would prefer if everyone self-custodied their sats. But that's not going to be the case. Some people due to differences in intelligence, personality, culture, interests, skills, etc. will simply opt for custodial solutions no matter the education or arguments given to them. Humans have logic as a tool in their toolset. We are not inherently logical beings. Not to mention, Bitcoin is permissionless so anyone could set up a custodial service that people will flock to.

The key here I think is make self-custody as easy and enjoyable as possible. Maximize the number of people who own their own keys. We will probably need to make the UX almost indistinguishable from custodial UX. We should also engineer trustworthy, accountable custodial solutions as well. We can't neglect that, otherwise people with less savory intentions will do it in our stead.

I believe you're thinking of Federated Chaumian e-Cash.