It doesn't have to be a replacement for traditional interviews. Rather it could be a way of distinguishing candidates instead of only relying on a white board.
When I was trying to get my first job out of bootcamp, I had a built a mobile app with my team mates, and we had it on our phones. The idea behind that was we could pull put our phones during interviews and show our interviewers exactly what we did.
"Btw, hiring manager, I happen to have that app on the projects section of my resume on my iphone as we speak - would you like to see it? Happy to walk you through the commits I made on github if you would like."
But...
Most hiring managers were not interested at all. Instead, it was all white board. The whiteboard brain worm infection in hiring managers just runs too deep, there's probably no cure at this point.
Who would you rather hire -- some one who could show you an actual project, code and all, or someone that can implement LRU cache in under 25 mins bc they happened to already do the problem on leetcode?
I can see a lot of value in contributing to open source being an alternative way of demonstrating competency. However, I don't think I'd want to see it become the only or primary way.