With Bananza, I think the idea is not to get the skill upgrades if you want more of a challenge. Also, many obstacles including bosses are made easier if you use the Bananza transformations, and you often skip interacting with a more engaging (specifically designed) mechanic/challenge by doing this. The game doesn't make it obvious that transformations/skills basically enable 'easier mode' though. I'm not really a fan of this self-imposed expectation on the player to make the game more difficult.
In Mario Wonder, you can skip a lot of the levels with the 'easy' rating if you want too, another example of this built-in difficulty thing. I'm not a big fan of it though in this case either as I feel like I'm getting less engaging content overall.
BotW/TotK are a good example of these built in difficulty options that I think worked better, as it's more obvious you are making things easier for yourself, and the exploration and puzzle aspects keep things interesting regardless. I think many aspects of these games are actually designed around a player not doing shrines and going straight for the main objective instead, I think that's why BotW basically teases you to go to the castle near the beginning too - hey you want a challenge? go for it.
In TotK, I only did the couple of shrines that are required and just stuck to the main objectives throughout, and I found it to be really engaging as I had to think more about things like cooking, the weapons I used, climbing routes, the approaches I took with enemies/bosses etc. I went back and did shrines etc after the story.
Other games outside of Nintendo have this built in difficulty thing too. A good example I can think of is Elden Ring, which is made much easier if you use the summons (especially particular ones) and collect more souls for upgrades.
I like how this is done in the Bayonetta games, where using any number of power up or healing items penalizes you by affecting your overall rating for trophies, making it impossible to get a Pure Platinum medal for that fight/segment.
We'll definitely see a lot of Nintendo games that offer more of a tradditional challenge throughout though, mostly from their partners perhaps. Metroid Dread was great for this.