Let's level set. Pun intended. 🤪

Experience Points Level Proficiency Bonus
0 1 +2
300 2 +2
900 3 +2
2,700 4 +2
6,500 5 +3
14,000 6 +3
23,000 7 +3
34,000 8 +3
48,000 9 +4
64,000 10 +4
85,000 11 +4
100,000 12 +4
120,000 13 +5
140,000 14 +5
165,000 15 +5
195,000 16 +5
225,000 17 +6
265,000 18 +6
305,000 19 +6
355,000 20 +6

Remember that in D&D, the amount of experience you need to level up increases exponentially as you increase levels. It is it's own limiting factor. If you award XP appropriately as a DM, you don't need to cap players.

Playing Descent into Avernus, the game specifically tells you that by chapter 2 your players should be level 5. However, we are playing with a party of 6 and using appropriate XP split. The players also didn't do everything, didn't fight every encounter, so they're a bit under leveled by chapter 2. They're still only level 4. They also dropped a party member and are down to party of 5.

Are they in trouble moving forward? No. They have NPCs in the party to assist, and they aren't super under leveled.

Did I need a level cap? By no means. Why? XP is being awarded appropriately. Heck, I even threw in extra XP at various points because I added a few events and such to customize the story a bit around them.

The XP awards, appropriately done, would balance level ups. You don't need to cap it. And then, as you get to higher levels, it takes longer and longer to level up. That's part of the system.

It takes 7,500 XP to go from level 5 to 6. Minotaurs are 700 each. Bulette is 1800. "But dang!" You might say. "That's 2500 in 2 encounters."

Split it 4-6 ways and it's not a big deal. THAT'S how XP should be done to balance out the system. Then regardless of party size and so forth, you don't need level caps.

But here's the issue. Encounters in the Underdark, as of right now, are not really designed for level 5. The bulette is. Absolutely. The Hook Horrors, that could work at 5. Minotaurs? Only 2 would be GG Easy for 4 level 5 characters - and forget party of 6. But hey! Sometimes having some easier encounters is nice. They don't all have to be brutal. Or they could increase the number of minotaurs you fight once they lift the level 5 cap. Instead of 2, maybe 3 or 4 for level 5 party of 4-6.

But then there's the duergar. Super easy for level 5s. Same with Kuo-Toa and Arcane Tower encounters. Grymforge would be a cake walk at level 5.

So should they cap us at level 4 so the Underdark is more appropriately balanced for 4 level 4s?

No. Once they lift the level cap they should do just like Descent into Avernus did. Expect players to be level 5 at that point and rebalance most encounters for level 5 characters. Don't try to enter the Underdark before you're appropriately leveled. If you do, that's on you if you die. That's open world. Right? Shoot! That's FR lore.
You set certain encounters to be a certain challenge level and if players get there too soon they die. Come back when you're good enough.

Don't cap players just because they're enjoying the full game and completing all the quests. Set encounters appropriately and award XP right. It'll balance out just fine.