In terms of fraud protection, the bitcoin network is only responsible for ensuring a double spend will not happen. I don't think it should be the 1st layer protocol's responsibility to also handle chargebacks and fraud claims... these issues need to be settled by intermediaries who are willing and able to deal with these customer issues.

KYC has zero to do with information security, and there's a legitimate argument that much of the regulation is anti-competitive regulatory capture with the primary goal of preventing new entrants in the market, with "security" being a secondary concern.