I think a very good first step legislation would be to require disclosure of this behavior. Public appetite would probably be very strong and it wouldn't run afoul of any of the other "people should be free to play games" arguments. You can play the game, but the owner of the game is required to disclose the rules of it.
Regarding "everyone knows" - right! Does "everyone know" this about sports betting apps? If no, then they should. If yes, then no problem requiring unambiguous disclosures.
this can also be spun in a positive way: if that does ever happen, the bookies are literally forcing someone to quit when they are ahead! isn't that considerate of them.
unfortunately, i think sports betting platforms just have many strong arguments that controlling bet sizes in this way is fine.
Of course the entire business is built on creating the belief that a user can make a ton of money. Due to this mechanic, this is an actual lie.