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.
The second string squad were fielded in that fixture because it was obvious they had almost nothing to loose if they don’t gwt to win that game so it was just ideal rotational technique was applied in that fixture as it did helped in the future fixture after that. I'm believing that Liverpool is going to have their main starting 11 against PSG because a whole lot is at stake in that particular fixture if Liverpool should loose it.
I agree that currently Liverpool could be more favorites in the match against PSG. Because we can clearly see that statistically Liverpool's performance in the UCL this season is indeed the best among all the existing teams. The proof is that Liverpool led the standings in the previous phase quite easily. It's just that in the last 16 the match tension will be very different. All teams will fight harder and be more careful too. Sometimes Liverpool themselves will play more cautiously and the match is sometimes not as aggressive as in the previous phase. But the excitement and fierceness will definitely be felt strongly. And yes, Liverpool will certainly also field their best squad. Because in the previous match against PSV, Liverpool did not play their best squad at that time because their position was already safe. But in the round of 16 and beyond, all matches will be treated like a final.