I think it's not feasible to continue the project as long as this issue isn't resolved appropriately. I've seen at least one contributor already dealing with letters from the RIAA because of a minor contribution years ago. That's going to significantly hinder community development of youtube-dl if it becomes more commonplace to harass anybody who's contributed anything to the project. Most people simply don't have the time or money to deal with this kind of thing. Most people don't want to deal with this kind of thing at all.

Let's assume that happens. Then instead of going after the hosting location RIAA will go after the developers which, until now, had no reason to hide their identities. That's what Blizzard did with bnetd, they sued the devs and invoked DMCA anti-circumvention clause, among many other things (in the end they ended up winning on the EULA I think).

Automatic anti-circumvention takedowns aren't a thing for this section of the DMCA either. But it becomes an automatic liability issue when you're informed so a host is betting their business and in some cases the jail time of senior executives to ignore it.

That is the case pretty much anywhere.

Why add a circumvention method in the first place.

If record labels want to stop users from downloading their content, that's more than fine. It's a giant attack vector for such a small net benefit.