Arne Slot fielded a second string squad in the final League Phase match against PSV, which resulted in their defeat. In my opinion, if Arne Slot had not rotated his squad, we might have seen Liverpool leading the standings with 24 points. Meanwhile, PSG had a very hard time reaching the round of 16, so it is natural that they are not the favorites when facing Liverpool. Of course, I don't mean to underestimate PSG, but on paper Liverpool are more worthy of being the favorites.
Despite losing their last group stage game of the season, Liverpool were still able to finish the group stage at the top with 21 points which was 2 points better than second placed Barcelona. I think Arne Slot decided to rotate his squad because he knew they'll stop top with a defeat and because they've got more difficult fixtures coming after the game against PSV. Winning that game would helped them become the first club to win all their group stage games in the UCL in the new format -A record that would've been very difficult to be matched or broken by other clubs in the future but at the end, it didn't have much negative effect on their campaign in the European Cup this season. They face Paris Saint Germaine next in the round of 16 and even when I know it'll be a very difficult game for both sides, I expect the English club to progress at the expense of their French opponents