I think thats valid to some point. Going through the KYC (Know Your Customer) process during registration can save you the hassle of doing it later when you win at a casino. The verification process may be smoother at this moment compared to a future scenario where you're forced to complete KYC. Even though it's a good idea to get verified early, you should be cautious about sharing your personal information during registration. Not all online casinos can be trusted. That's why it's crucial to choose reputable casinos and not just any you come across on the internet.
it is important to choose a reputable casino first, if we start to play on any fancy casino without researching them or reading the review from their players, it highly likely that the casino is involve in stealing players money.
I always do level 1 and level 2 KYC after registering on a reputable casino, Because once I won 5x on my deposit and the casino i was playing on is not allowing for withdrawal. their support said you will need to complete KYC. and they asked many documents that are not easy to get like passport, Driving licence, etc. I don;t have both. so learned my lesson hard way and now I always play on few reputed casino after completing KYC/
If a casino is fancy or too good to be true, people shouldn't be rushing on it for fck sake because it is one of a sign that they can be shady (like you said). They should verify first if the features offered there are legit. Same goes to the casino, but I think they can mostly do it on those normal casinos. These are the types of casino that they like to suspect with.
If a reputable casino that I'm signing up with, mandates a KYC, I as well do at least level two of it (like you) because this is where we can unlock most of the benefits. Level 3 can only be optional and it might only be built for a whale player to greatly increase their transaction limits.