YC itself didn't do convertible notes — other investors did. YC's investment as far back as 2011 was an equity mechanism (which I think was similar to the new Safe).

Other seed stage investors used convertible notes. These technically "debt", but only as a mechanism to keep from having to go through valuation exercises on <3 person companies that had plenty of other things to worry about.

Debt term limits and interest rate limits were bad for companies. It was not possible to have debt with, say, a 50 year term and a 0.1% interest rate. Instead, the debts had 5 year terms and non-negligible interest rates.

The term and interest rate limits were on the LOW side. i.e. being forced to renegotiate after 2 years if you haven't raised money yet (which happened to a lot of people, and the investors never had a problem with it), and charging a 0% rate (which is below the applicable federal rate and thus potentially viewed as a gift) is not the issue. It's not that YC/notes were trying to charge usurious rates or whatever.

If you read that link you posted you'll see "what the investor buys is not debt, but something more like a warrant. So there is no need to fix a term or decide on an interest rate"

Warrants just give the investor the right to purchase equity at a given price some time. They are not debt.