On the topic of games getting easier or harder depending on the player's skills/performance, I found a video about feedback loops on YouTube. And if I understand it correctly, dynamic difficulty means roughly the same thing as negative feedback loops. And one thing mentioned near the end of the video, which seems to serve a similar purpose: optional challenges that are harder than the normal ones and not needed to beat the game. Skilled players can have fun with the hard challenges, and less skilled players can just skip them. (Ideally, those challenges shouldn't matter narratively in the game, since less skilled players should still be able to get the whole story.)
And yeah, the rewards for playing really well shouldn't accidentally make the game easier.