Disclaimer: This is a combination of other peoples ideas and my own

On chain BTC will be base layer money. Currently it's in the store of value phase where most of it's utility comes from investment speculation, but gradually it's utility will become like that of fedwire / federal reserves, ie final settlement primarily between banks (and other parties that may occasionally may want to interact with the base layer for security, trustlessness, and finality). In this world normal people will usually never have to interact with the base layer, the fees of which will be like 30$ per transaction (in today's prices), because that's around what fedwire costs, making mining profitable.

Normal people will use layer 2s issued by banks, which they will have the power to expand and contract as the economy requires. The key difference from our current system is that the base layer cannot expand, so this expansion and contraction will be bounded as it ebbs and flows with economic cycles, rather than ever increasing. Fractional reserve banking will still be the core of the financial system, because it provides enormous value by turning stale funds into productive investment, without forcing investors to face direct counterparty risk with end borrowers, and requiring them to give up the liquidity and stability of their wealth.

The major difference is it will be decentralized and community based, with all profits going back to depositors, organized as DAO's which encode the decision making structure without having to trust a central party. Loan applicants will apply to various DAOs, AI will analyze their application and give a risk score, and some structures could have an elected council that conducts zoom or in person interviews to determine soft information, give their rating of the applicant, and then all members of the DAO who decide to opt in vote on wether or not to approve the loan.

These fractional DAO bank deposits will be directly redeemable for bitcoin from the bank, imposing market discipline on risk taking, with no or very minimal government backstops (no deposit insurance). This network of decentralized DAO-structured community banks will focus on loans to small and medium sized firms to people they know in their community or projects they believe serve humanity, the innovation engine of the economy, rather than big bank loans to big monopolizing firms and highly unproductive inflationary real estate lending. There will also be full reserve options for people who do not want to take risk, but they will miss out on high yields.