Getting physical access to users’ devices is more difficult than compromising their passwords, so in that sense, transitioning that one factor is a net improvement in terms of reducing the number of compromises for a given service.

Except for e2ee accounts, which I suspect Passkeys don’t support in the first place (at least, not without caching the password on your device), law enforcement can access your account’s data without ever needing your password. If you’re concerned about law enforcement breaking into your device and you’re not using a unique 16+ character passcode with it set to wipe the device after a certain number of attempts, that’s on you.

I’m not sure about the state of affairs on Android, but the most popular and powerful tool used by law enforcement to extract data from iOS devices only recently gained support for iOS 17 and it doesn’t have the ability to bypass passwords on a device that isn’t accepting FaceID; it just has the ability to brute force them. A password with sufficient entropy mitigates this attack. (It’s unclear if it’s able to bypass auth when FaceID is enabled, but I could see it going either way.)

You said a couple of things that I specifically want to address:

But it doesn't solve anything that existing TOTP over text messages didn't solve, other than some complexity, and it eliminated the password (something you know) factor at the server.

and

outside of MitM attacks that TOTP mitigates

Text-message based TOTP - or SMA 2FA - is incredibly vulnerable. In many cases, it can be compromised without the user even realizing. A user with a 4 digit PIN (even if that PIN is 1234) and a Passkey on their device is much less vulnerable than a user using SMS 2FA with a password used across multiple services.

If a user cares deeply about security, they likely already have a set of security keys (like the YubiKey 5C) that support U2F / WebAuthn, and they’ll add passkeys for their most sensitive services to those devices, protected by unique, high entropy PINs. This approach is more secure than using an equally high entropy password and U2F / WebAuthn if the latter isn’t secured with a PIN, since these devices are extremely secure and wipe their contents after 8 failed PIN attempts, but the password is transmitted to the server, which receives it in plaintext and stores it hashed, generally outside of a secure enclave, making the password vulnerable, e.g., if grabbed from server memory, or to a brute force attack on the hash if the server (which could be undetected and only involve read access to the db server), meaning a simple theft of the security key would be all that was needed to compromise the account (vs needing the PIN that is never transmitted anywhere).

And app-based TOTP doesn’t mitigate MITM at all. The only thing it does is add a timing component requirement, which current MITM phishing attacks have incorporated. To mitigate such an attack you need Passkeys, Webauthn, or U2F as an authentication factor. To bypass this the attackers need to compromise the service itself or a certificate authority, which is a much taller task.

The other thing is that we know most users reuse passwords and we know that sites will be compromised, so:

• best case scenario, salted password hashes will be leaked
• likely scenario, password hashes will be leaked,
• and worst case scenario, plain text passwords will be leaked

and as a result, that user’s credentials for a different site will be exposed. For those users, Passkeys are a vast improvement over 1FA, because that vulnerability doesn’t exist.

Another factor is the increased visibility of Passkeys is resulting in more sites supporting them - U2F / Webauthn didn’t have great adoption. And getting these into the hands of more users, without requiring them to buy dedicated security keys, is a huge boost.

For the vast majority of users, passkeys are an improvement in security. For the few for whom they aren’t, those users likely know that, and they still benefit from increased adoption of a MITM immune authentication method, which they can choose on a site-by-site basis. And even they can benefit from increased security by storing passkeys on a security key.