This is great. I like how you contextualize self custodial. I hadn't found a good way to talk about this idea, but I think I may steal yours: Fedimint is self-custodial in the context of the operant layer, in this case, the relevant federation. Each layer (or sub-network) provides its own guarantees that participants can evaluate as they like, and holdings are sovereign within that layer.

Just as layer-1 btc is sovereign within the bounds of the btc protocol and not outside it, holding federation notes is sovereign in terms of that federation's affordances. If you find the guarantees of a particular federation to be compelling, it effectively scales btc for you, as transactions with acceptable guarantees can occur off the btc chain. If you don't find its guarantees compelling, then it provides no scaling as far as you're concerned.

This is inevitable and there is no other solution for scaling. The only question is which form[s] of such scaling people ultimately find compelling enough to use.