There was massive internet backlash toward it but I still truly think Valve's "paid mods" idea is the way forward for this. Back in the day, when Unity/Unreal/Godot weren't freely available for anyone to use, people would put a lot of their own personal time into making mods, without any expectation of pay. Now, even if the mod tools were there for modern games, why would anyone make a "total conversion" mod instead of just making the game themselves using free modern tools?

Creating incentives for game developers to add mod tools to their games by creating the incentive for potential mod-makers to make some money off their work seems like a solid strategy for me. (I think I heard a rumor somewhere that Valve is going to bring back the "paid mods" idea again soon, possibly in a retooled form.)