The problem with TOTP is that it isn’t a second factor. It’s like Kerberos for the web. Passkeys are similar, only allow hardware devices with PIN.
It's something else that is unrelated to your password that you have to provide in order to log in, is that not the definition of a factor of authentication ?
Because it's phishable ?
Incidentally, passkeys go into my password manager too. You can probably work the math from there.
(I'm heterodox on this matter, though. I don't believe in the existence of "things you are" and "things you have". I think it's all ultimately just "things you know" and it's all better analyzed in terms of the cost of knowing and proving knowledge, and that the 3-factor framework for authentication is wrong.)
To address other security risks more comprehensively, you need to have a tight issuance process and use something key based in hardware. I’m working on a project where we deploy Yubi keys or similar, with an audit trial of which is used by who.
High trust environments need things like enterprise attestation and a solid issuance process to meet the control needs. Back in the day, the NIST standards required a chain of custody log of the token - you could only use in person delivery or registered mail to send them.
That’s overkill, but the point is the technology is only one part of the solution for these problems.
With TOTP (as well as passkeys) you as a consumer are safe from a vendor being hacked and your credentials being leaked from their side. You're also safe from fishing attacks.
On the other side using passkeys or password+TOTP a vendor is safe from credential stuffing of credentials a malicious actor gained through the above.
Sure you can say that it's both the same factor. But even so it has real security benefits which are much more important than just fitting in authentication factor categories that were thought up more than a decade ago.
There's a big difference for a malicious actor to gain access to millions of devices to steal the TOTP crypotgraphic string of users vs gaining access to a single vendor. TOTP doesn't save you from the first case but it sure as hell saves you from the second being disastrous.
The best you can do is attestation. Embed a certificate and private key in the TPM that says it's a real genuine FooBarCorp TPM, and sign all responses with that private key. This is terrible for the open ecosystem. It's also the only way to do the thing everyone sells their product on being able to do, so if it's allowed, then it's inevitable.
For fingerprints/etc you generally just need a great camera.
I hope Passkeys will become deployable, but the last few times we tried public key auth over web, it hasn't really work out all that well. However nobody but the DOD has been able to support it, and they only support it by brute force. It's not really deployable by anyone else. TLS client certs were never even tried seriously the UX was never remotely good enough. I fear Passkeys will be basically the same problem. UX is fine on the happy path, but the unhappy path is littered with broken at every turn.