Earlier quoted context omitted.
Which sounds like your signal is "cogently explain something interesting about their side project" and not simply "did something worthwhile for free".
Sure. I suppose that if you go deep enough, my signal is "will write good code here", which is suggested by "can write good code", which is suggested by "has written good code" and "wishes to write good code", which is suggested by..."did a side project" or "doesn't only write code when someone is standing there to pay them for it" or Everything in an interview process is an approximation and guess.
My observation is that this biases the employment pool toward those who have extra money and time to work for no income.
Those who have to work two jobs, or spend their free time taking care of chronically ill family, or are otherwise prevented from being able to work for free, have less of a chance, even if they are otherwise well-qualified.
I have no suggestions for what to change, only my original comment that "passion" seems altogether too often a code phrase for something other than "loves to program."