cyptos fluctuate waaay to much.

For a settlement layer that doesn't really mean much, you are just at the mercy of liquidity and slippage on both sides of the transaction. As long as the underlying asset has similar pricing on both sides it cane be used quite easily if it is electronic and relatively fast.

Would probably still cause less overhead than trying to settle physically trough something like gold despite being more volatile. Where transport times would mean icreased exposure due to the time involved. Hell even shipping pallets of USD around has quite a bit of exchange range risk.

All comes down to what your alternatives are and what friction you are currently dealing with. The most important part is that there is liquidity available, the rest is details.