What makes you think that Bitcoin's decentralization will be compromised if it becomes a legal tender? That has nothing to do with its decentralization, because decentralization is in its network, and even if it becomes a legal tender, the government can't control its network, and that's what decentralization is all about. KYC can only be implemented on platforms or things that are generally centralized and allow them to control everything, but Bitcoin's network can't be controlled; the transactions, blocks, or anything can't be specifically controlled or filtered.

That being said, Bitcoin becoming a legal tender doesn't really boost its adoption, because that doesn't specifically make more people adopt and use Bitcoin but only the ones who already use it will use it more often when it becomes a legal tender, and the reason for that is that when Bitcoin becomes a legal tender, fiat currencies don't get banned, so most people will still use fiat currencies, look at El Salvador, do you think all the people in there use Bitcoin because it's a legal tender? No, most people still use fiat.

Legal tender wouldn't hurt your privacy; when you store Bitcoin in a noncustodial wallet, the government can't control it. Legal tender means you will be able to use your Bitcoin everywhere in your country. Whenever you want to pay Bitcoin for something, the second party is forced to accept it. It's like when you are now buying goods and paying with fiat, then the shopkeeper must have to accept it. Even if the government launches their own wallet system to control you, it isn't necessary to move all the Bitcoin into the government-issued wallet.

Imagine you have been using a crypto debit card. Do you transfer all the funds to the card? I don't think so. You just move whatever amount you need; at least I am doing the same thing. So you can follow similar strategies for your Bitcoin with a government-issued wallet or exchange. Still, you are sharing our KYC with third parties like exchanges and gambling sites. You are safe if you can secure your Bitcoin right away.

If Bitcoin doesn’t serve the purpose of being a legal tender, then it doesn’t fully certify as a p2p currency for which it was its intent by its creator.

You indeed raise a good argument though, that regulations does mean centralization. If I’m taking that out of context then, I beg your pardon and would have you correct me.

I wouldn’t base decentralization on regulations though. Bitcoin can’t be regulated but aspects of it is what can. That means, you can regulate how people use it across certain channels but it is in fact these channels that are being regulated and not Bitcoin.

Should Bitcoin function independently of exchanges and move from one non-custodian  to another as it out to be, regulations would have no means to have any effects there.