I get the point but it would be pretty hard to get any significant benefit from this.
If you are able to keep your #1 seed in Elo at the end of each round, if there are odd numbered players in the KO you will lose your lowElo-wildcard and a round later you will have slightly stronger matchups.
And even if you aren't #1, but from the top ranked players keeping that player may benefit others rather than you, or at least it improves your pairing a bit.
Unless there are practically less than 8 players left and someone weak has survived for too long, or keeping that player makes you have bye-round.
But, these aren't things that stronger players need to worry about. I haven't seen anyone really wanting to try and get that kind of advantage. They just focus on taking him out, I think they would still do it regardless of what they might gain by not doing so.
So I think if it's not more popular it's because it doesn't give them a significant advantage.
So I'm in some 1 v 1 daily tournaments and I was looking up the rules. If I understand the rulkes correctly, I don't think the way they are seeded incentivises good play.
From what I can work out:
Round 1, the highest-rated player is seeded against the lowest-rated player; the second-highest against the second-lowest, etc. This can lead to some unequal matchups but so far so good.
This issue is round 2. If I'm interpreting the rules correctly, people are re-seeded again round 2 the same way as in round 1: by rating. This goes against how seeding is done e.g. in the football world cup, where points in the tournament itself decide the seeding.
As a result, it disincentivises winning both matches in a 1v1 tournament. If you win the first match, you're guaranteed a place in the next round but you won't get much advantage from winning the second.
Winning the next match will only improve your match-ups from the rating it wins you, and that assumes the tournament is even rated.
You may find that actually, losing the second match will improve your later match-ups, because it means your opponent will go to the next round too; and if they're lower-rated they will end up fighting the stronger opponent instead of you.
If seeding in the second round was based on points instead of rating, it would incentivise winning every match. As it is, the second match of the pair will only "matter" if you lose or draw the first one.