The DofE's algo does not "moderate down" teacher-assessed grades. It ignores them. This is deliberate, since it replaces the external exams that students have been unable to take. Teacher assessment (now) plays no part in external exams, so it doesn't in the algo either. 1/

However, the algo has serious limitations that make it a very imperfect substitute for exams. And the solutions they have designed to deal with the algo's limitations introduce intrinsic unfairnesses that are absent from the exam system they aimed to replicate.

1) The statistical methods used to infer grades don't work where student numbers are small. So they have used teacher-assessed grades for small numbers. This is equivalent to telling students in small classes that they don't have to take exams.

It would be obviously unfair to require students in large schools and colleges to take exams while teachers in small schools set their students' final grades. But this is effectively what @OfQual has done.

2) Exams are indifferent to the school or college's past performance. So it's possible for a brilliant student to outperform their school. But because the algo bases its grade assessment on the school's past performance, it does not permit individuals to outperform.

It also wouldn't permit a student to underperform with respect to their school or college's historical average, though we don't hear about this - after all, no-one complains about doing better than they expected.

Forcing outliers into the middle of the distribution may be acceptable to statisticians, but it's devastating for the individuals concerned. Not just for brilliant students who didn't get the grades they deserved, but also for people whose grades overstate their ability.