It’s not necessary, it’s just used to encrypt the secrets using your PIN.
YubiKey doesn’t encrypt the secrets, at least as far as I know, would be happy to be proven wrong.
If anyone can just randomly access your security key and do whatever they want with it, it’s not great already, they might as well just break it. And of course, you should always have backups.
TOTP secrets aren’t encrypted.
Good luck tampering with YubiKey or OnlyKey at all, let alone leaving no signs of tampering. This is just a downside that is worth pointing out, if you care about it depends on your threat model.
As for equipment, I will leave it up to you to decide if $3000 in equipment is expensive or not.