I don't think you're wrong conceptually. But in practical terms:

1) the traditional options with varying risk profiles are mostly legitimate. The ratio of scam to authentic project is much higher in crypto. Or if not "scam", products where the creators (as pointed out in this article) might be perfectly happy if the product turned out to be successful, but mostly don't care because they make their money up front: reward with very little risk. Retail customers take all the risk. Traditional financial products align incentives better because if no one want is, no one is making transaction or management fees either. They're (mostly) only successful if customers are successful

2) Financial products based on crypto have no real-world assets backing them, making their prices much more volatile. If you're investing in traditional high risk product that ultimately relies on a real-world commodity like oil, you can make reasoned predictions on where oil demand might be headed. Your might make a high risk bet that oil prices are going to bottom out from their current peak due to decreased demand after the Summer and a minor resurgence in COVID as more and more people go back to work and then kids stop distance learning and mostly go back to school in the fall, etc. You might be wrong, but you can see an actual underlying asset with real-world utility to make better reasoned decisions. It is much harder to do that with crypto when a tweet by some high profile billionaire (Elon comes to mind) or rumors of regulatory scrutiny could send prices soaring or plummeting. This is very rare in traditional financial products.

I also don't think crypto will ever ever ever replace government regulated markets. It may become part of them, but not replace. The government (at least in the US) is already regulating crypto. CTR's are already required, the SEC has stepped in pretty heavily to classify most crypto as securities, complete with the requirements that comes with that, etc. It can be decentralized but still regulated, and governments are simply not going to allow crypto to take away their ability to control their own monetary policy. Plenty of governments may wish to move on from the USD being the default world reserve currency, but that's because they want it to be something they have more control over. Crypto doesn't fill that role.

All the US would have to do is regulate how every US bank works with crypto, and require that US banks only work with foreign banks that follow similar requirements. Any foreign bank wanting to do business even remotely related to the US-- which is nearly all of them, would have no choice but to follow. Or the US could regulate how businesses are able to accept crypto as a currency. Businesses don't operate in a decentralized abstraction layer: They operate in physical locations. It might be difficult to seize their crypto assets if they violate the law (though not impossible) but still very easy to seize & shutdown their physical assets, throw people in jail, etc.

Sure, if crypto could somehow avoid all of that until it became the de facto medium of exchange, governments would have a much harder time doing this. But it's not like governments aren't aware of what's going on, and as I said the regulation has already begun.