The security and authentication occurs with the T2 security chip. If the T2 chip becomes corrupt, then so does any customized settings.
Also, Once you perform a DFU Firmware Restore it will reset those changes.....I'm not sure if the same occurs with a Revive, but I think it might.
If a DFU Firmware Revive and Restore does not help, then you likely have a bad Logic Board in that MBAir.
Make sure to disconnect all external devices in case one of them is causing a problem.
I didn't say it before, but more than likely the Logic Board on your laptop has failed which unfortunately tends to occur more than it should with the 2018-2020 Intel Macs with T2 security chips. In fact the MBAir Logic Boards tend to have a higher rate of failure.....especially higher than the older 2013-2017 Airs. And I believe the 2018 MBAir actually had a free repair program for bad Logic Boards at one time, but that program expired some years ago. Just last week I had to "retire" another MBAir 2020 Intel model for a bad Logic Board.
Personally I don't recommend spending any money on repairing any 2016-2020 Intel Mac with USB-C ports for multiple reasons. The money spent on repairs is better put towards a new laptop.