Such a situation is possible and is already being implemented effectively without any ranking system.

That's not true! Let's look at three possible scenarios: 1) determining places based on ranking, 2) determining places by drawing lots (in case of a tie), 3) determining places using tiebreakers.

For example: There are 5 people in a group. 2 obvious underdogs. Now, what will happen if, in the first match, one of the three contenders for advancing from the group with the lowest ranking loses to one of the other two?

In the second and third ways of resolving the problem, everyone remains motivated to play, and the winning player even has an incentive to win all remaining matches.

And only in the first case (and I can't think of a better name for it than a blatant ranking system) does the winning player have a motivation to lose to another contender for advancement so that both can advance from the group. Also, the player with the lowest ranking loses almost all chances of continuing the competition. And there are still 3 rounds ahead! Even in an Olympic system with best-of-two matches, there is always a chance for a mistake. How else can such a system be described?