Correct. Just like with a bank, or with a custodial exchange, what you are seeing in the app is a ledger entry of an IOU from a custodian.

The dollars can be withdrawn from a Chivo ATM and that gives all (including the unbanked) a chance to not have to trust Chivo for more than a small period of time.

I can't say with certainty what the best approach is, but transparency with the funds would definitely not hurt.