I have the same problem with my M1 MacBook Pro but I found a workaround to create the folder on the desktop and then copy that folder into the Cryptomator volume. I’ve reported the WebDav kernel panic crashes to Apple; hopefully they fix it sooner than later.
Use of MacFUSE is of course possible but it involves a complex 7-step recovery mode process to permanently place the M1 Mac in ‘reduced security mode’ to allow 3rd party kernel extensions. Can’t imagine that many Mac users would be willing or able to do that, and so it’s obvious that Apple is pushing developers to write their applications without needing to use kernel extensions.