Covenants will not, by themselves, allow unlimited scaling on L1. What they enable is greater density of key-holders on chain by sharing UTXOs. This could mean multi-party Lightning channels, for example.

Pegged shitcoins are still shitcoins. Holding your keys on Liquid or an eCash mint doesn’t make it sovereign. You can still get rugged by the issuer, or State regulators taking down the issuer, or hackers hacking the issuer, etc. etc.