For those that don't know what Fractional Reserve is .
In the past, savers looking to keep their coins and valuables in safekeeping depositories deposited gold and silver at goldsmiths, receiving in exchange a note for their deposit (see Bank of Amsterdam). These notes gained acceptance as a medium of exchange for commercial transactions and thus became an early form of circulating paper money. As the notes were used directly in trade, the goldsmiths observed that people would not usually redeem all their notes at the same time, and they saw the opportunity to invest their coin reserves in interest-bearing loans and bills. This generated income for the goldsmiths but left them with more notes on issue than reserves with which to pay them. A process was started that altered the role of the goldsmiths from passive guardians of bullion, charging fees for safe storage, to interest-paying and interest-earning banks. Thus fractional-reserve banking was born.
Now back to your question,
Option 1:
(Most Likely Scenario) At the moment , 1 Onchain BTC = 1 LN Note , this is all controlled in the LN Hub software
At some point the LN code could easily be modified so 1 Onchain BTC = 2 LN Notes , but instead of these Notes being now worth ½ , LN Hubs still sell it as worth 1 BTC.
Basically Doubling the Supply of Fake Offchain BTC (LN Notes) overnight, and there is nothing stopping them from multiples of 10 or more just like a bank used to be required to only loan out 10 times their total deposit amount.
LN Notes are nothing more than a Offchain Representation of the Value of a BTC as such that are no real barriers preventing a fractional reserve system, it is only 1 software update away.
Option 2:
By colluding with the PoW miners a LN HUB could record a large number of BTC locked, but if the miners 51% attacked and rewrote the blockchain so the BTC was never in the address to be locked, then they just counterfeit LN Notes for the duration of it's usage in the LN network , only to be discovered when someone attempts to cash out onchain.
FYI:
With OnChain Coins , Counterfeiting was impossible , now using offchain networks like LN, counterfeiting and fractional reserves enter into the crypto world.
FYI2:
For those that say fractional reserve of LN will never happen,
I say this, open your wallet , observe the Fiat in your hand, the masses have been using fractional reserve money for a long time and the elite profit off it,
the elite plan on controlling crypto the same as they do fiat. LN=Banks.
FYI3:
https://prof77.wordpress.com/the-20/the-international-bankers-famous-quotes-about-international-bankers/“The bank hath benefit of interest on all moneys which it creates out of nothing.” – William Paterson, founder of the Bank of England, 1694
If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” . . . “Paper is poverty. It is the ghost of money and not money itself.”– Thomas Jefferson, 1743-1826
“Whoever controls the volume of money in any country is absolute master of all industry and commerce. And when you realize that the entire system is very easily controlled, one way or another by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.” – President James Garfield, 1881. He was assassinated just weeks after making this statement.
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” – Henry Ford, circa 1925
