Cash has centralized distribution, but it's very decentralized in use. That's what makes it useful. However, sometimes people might choose to use a centralized service provider (like a bank, or a credit card company) because it's useful. They still have the option of using cash. What's important isn't that every single transaction happens in a fully-decentralized way: it's that decentralized transactions remain an option. That means that banks and credit card companies have to compete with cash, and that they can never have full control of your financial life.

The same is true of cryptocurrency. It's not a problem that centralized service providers exist. If they stop providing useful services, people can just take their cryptocurrency and go home.

That credit cards exist didn't mean cash stopped existing. Likewise, just because CEXes and L2s exist doesn't mean L1 cryptocurrency doesn't exist. You can still grab a non-custodial wallet and still manage your own crypto. Today Coinbase has a debit card that can sell crypto at FMV, apply their spread (1.88% I think?), and immediately use that to pay off USD denominated bills. So if your crypto is in your wallet you can just send your Coinbase wallet the funds for the purchase and then swipe your debit card to pay.

Coinbase's spread isn't the worst thing to pay for the service of having a debit card and auto-selling, but if you also buy crypto using Coinbase, they double-dip on the fee.