I think what's essentially happening here is that Instagram has lots of tracking and targeting so it's very good at telling advertising "Hey, here's the list of people
you want to advertise to, and here's how much it will cost". The result of this hyper-targeted approach though is that if you're not in any of the targets no one wants to advertise to you at all. This is the weird part though, rather than accept this, Instagram juts lowers the cost of advertising to you to practically zero. This is what opens the door to these trash ads - it's a kind of noise floor where ads are so cheap you may as well just spend some money on advertising something that costs you zero capital and has crazy margins - cheap chinese drop shipping rubbish. Because there's practically no barrier to entry, it immediately becomes a race to the bottom and the price of the adverts will perfectly match the margin times conversion rate.
What's interesting here is that Instagram have basically decided not to put a floor in. They could very easily say "Hey, we don't yet know how or what to target at these people, but they're still users, let's just not show them many ads, keep them happy on the platform, and give up on that ad revenue until we get it figured out, once we've firgured it out they'll probably be valuable". Instead what they've decided is "Hey, we have no idea how to target at these people so let's just drop the price of ads to the point where anyone will advertise any crap, it'll give the users a terrible experience and forever associate our app with cheap tat, but atleast we get to pick up that tiny revenue stream from drop shippers"