You're only looking at one side. Dynamic difficulty also allows players to progress by lowering the health of a boss they've failed to beat for over two hours.

Casual players giving up was a problem that no amount of shaming managed to fix ("haha skill issue, sucks to suck").

How is it a problem? Giving up is absolutely fine. Different games are made for different types of players. Who cares what the others think (or you think they think). By trying to cater to everyone you satisfy nobody.

If a game is so hard that the player gives up, they won't buy your next game. That is an existential threat to your game studio.

Worse though, if your game is deemed 'unfair' rather than just 'hard', then even the hardcore gamers will avoid it. That's enough to kill the business before you even start the next game.

Some studios pick the 'hardcore' market, especially once they've built a reputation and a following, but everyone else needs a more general appeal in order to stay in business.

If your studio's only goal is to make money and games are a byproduct then it makes sense, but in most of the gamedev it leveled itself out some 10-15 years ago - very few studios outside of mobile gaming target the lowest common denominator audience, most seem to understand that opinionated design adds flavor and sells the game as well. Certain target audiences simply never cross under any circumstances, it's not even necessarily "hardcore vs casual".

Just make it a concrete option then. What is the point of being sneaky about it?

Yeah, Hades did this with God mode and it worked very well.

Probably because some people want to feel like they're succeeding in the 'actual game' and not the 'Fisher Price version of the game'. For those people the solution is ultimately to make their reality appear to be that, even though it isn't.

Resident Evil 4 famously had a hidden dynamic difficulty setting that made the game easier if the player struggled. I think it worked because RE4 is a linear / ambiance based game. The game designer wants the player to progress in the story, and getting stuck on an impossible doesn't make sense except if the player chose a challenge mode. Contrast with Morrowing where it makes no sense having common bandit on the road carrying god-like equipment.