The problem with eXch is that it's a centralized service in an environment hostile to privacy, or at least to no-KYC exchange. If I were them, I'd simply comply with court orders (ignoring government requests), or at least restrict/review some transactions (flows above $50,000), or temporarily restrict the service when such events occur. While the above solutions aren't ideal, they're much better than losing eXch; we've lost a good service.
When we have something decentralized then we can do whatever we want I am not recommending doing anything illegal here..
Looking at the broader picture, the biggest problem with eXch arose when they took over a large part of the XMR market. More frequent attacks from competitors such as Whitebit, Bybit etc... From earlier, they marked coins with eXch addresses as tainted, and with a long-term negative campaign against them, we came to the point that eXch was the subject of an investigation.
Yes, the centralized exchanges also have their part in bringing this non-KYC service down. They would like that people go to the eXch and get their funds exchanged without any hassle. Those exchanges would ideally want that people uses exchanges to convert their coins and they have the KYC which they use as a weapon to enforce government authorities to get down such services that are operating with any KYC. Exchanges like Coinbase, Kraken, Binance and others etc that operate under strict government regulations can also attack the non-KYC exchanges by blocking Blocking Withdrawals to Privacy Wallets like Wasabi or Samourai. They may Flagging Non-KYC Transactions when you transfer money from CEX to non-KYC exchange and many other tactics.
CEXs (Binance, Coinbase, Kraken, etc.)