Often you want your domain models to be structured differently than API models, to make them as convenient/understandable to work with as possible for your use case. If you already have different models, why would you want Pydantic in the domain? Even if they start out the same, this would allow them to more easily evolve to be different. I'm not a python expert, so I could be missing the point on Pydantic, but it seems like its value is at the edges of your application.

That's all fair, I just think it has more to do with separation of concerns than Pydantic and that the OP doesn't make it clear at all.