Apple just pushed design to far and underestimated the cooling/heat dissipation required
Increased heat when operating near the current limit is a symptom, not a cause. Adding a fan or a chonky heatsink to your iPhone wouldn't magically raise this limit.
The hardware and software were shipped with performance optimized to the initial voltage curves of the battery. Once that voltage curve decreases slightly the device will either reboot when the processor attempts to run at a higher clock speed than the battery voltage can support, or the battery can technically keep up though begin to overheat as the operating voltage is a higher draw than the battery can safely handle.
Dont get me wrong I'm not aware of any concerns over the phone actuary catching fire like that one generation of Samsung years ago, but the degraded battery would either lead to reboots or excess heat.
A two year old lithium battery under normal use will hardly degrade at all. Any design that pushed the limits so far that a degredation of a few percent over promised and under delivered. In Apples case it could be remedied with a software update, but that doesn't mean the device held up to the original performance claims over a standard life cycle of device use.