We can only judge the value of a cryptocurrency by comparing it with the price of fiat. There are no other methods for assessing value in our world. When there was no fiat, there was exchange in kind, but it was found to be cumbersome and ineffective.
There will always be price volatility in cryptocurrency. This is a feature of this market and cannot be eliminated in any way. Therefore, we say that cryptocurrency can only exist alongside fiat. On the other hand, states will not allow their national money to disappear.
Unfortunately you are right. If the world was a peak crypto world, then we would have things all in crypto and not pegged to fiat, how do you know an apple should worth 1 dollars? It says on the price tag, that is exactly how the world could have been.
Imagine there is a minimum salary requirement with crypto prices, like 0.001 bitcoin or whatever, imagine a world where you buy everything with bitcoin and sell everything with bitcoin. In that world we wouldn't need to actually work for fiat, there won't be a fiat, it would all be in bitcoins and in that world there is no need to peg anything to fiat. Obviously this is a pipe dream that will never happen, but it would definitely be possible as well.