Indeed, Leetcode tests algorithmic knowledge but no ___domain knowledge. I work professionally as a front-end developer and I dread losing my job because I could never pass a Leetcode interview. I can thoroughly reason about web development, I know the stack front and back, it's my passion... but a Leetcode interview doesn't test for that at all.
I think every tech-related company looked at the high bar at big tech, assumed the algorithm questions was the only signal (it's not), and have been poorly aping that ever since.
I also think a simple 20 minute discussion between a hiring candidate and an engineer simply discussing how to build something will give you better hiring signals than any Leetcode challenge.
I attended a meetup a number of years ago at a local trading firm, well known for a barrage of impossible puzzles and some simpler, like implement an order book for a matching engine. One of their senior guys did a talk on their trading system. I asked a basic question and the answer was so naive it was shocking. Maybe their best people don't do the talking.
I think every tech-related company looked at the high bar at big tech, assumed the algorithm questions was the only signal (it's not), and have been poorly aping that ever since.
I also think a simple 20 minute discussion between a hiring candidate and an engineer simply discussing how to build something will give you better hiring signals than any Leetcode challenge.