This is the kind of situation that I don't want to be in, but I like to ask OP how do you want to see this end because everything is pointing for you to do KYC so things will be settled is it a no or a yes only you can answer this...
There is no need for KYC because OP has already admitted gambling from a restricted location. Therefore, he shouldn't be on Stake in the first place. He knows that fully well, that's why he used a VPN to bypass the restrictions.
His attempt of a defense is childish. Saying that other people do it as well is like complaining to the police why they arrested you for beating up and robbing your neighbor when people all around the world do it and get away with it. That doesn't mean it's legal. It just means they weren't caught, but you were.
The only question that needs to be answered is does Stake have the right to claim a player's entire deposit in case of a breech of the TOS? And if the player undergoes KYC and it is proven that he resides in a restricted country, can he still get his deposit back or not?