That was a horrible decision the moment it was even brought up for consideration. I never understood letting a better and cheaper version of Krug go just to bring in the older, worse and more expensive player.
I disliked exposing Dunn over Krug for the Seattle expansion draft, but you're definitely using a hindsight bias here.
Dunn was not a better player than Krug at the conclusion of the 20-21 season. He was a player that struggled to meaningfully earn ice time in the 19-20 season before Krug was here to directly compete for defensively sheltered offensive minutes:
2017-18 17:14 atoi 75/82gp
2018-19 17:32 atoi 78/82gp
2019-20 16:16 atoi 71/82gp
2020-21 19:15 atoi 43/56gp...
Under Berube, Dunn's ice time was falling season by season as he wasn't a trusted defensive stalwart and he didn't mesh well with our available defensive partners for their roles (him and Larsson pair very well for the Kraken).
Interesting thing to consider is Krug vs Dunn stats for the 2020-21 season
Dunn 19:15 atoi, oZS 60.8%, CF 54.3%, PP Toi 72.6 - 7 PPP
Krug 22:33 atoi, oZS 58.0%, CF 53.9%, PP Toi 145.9 - 13 PPP
The arrival of Krug saw Dunn hit new career highs with an expanded role, and earn criticisms for his defensive lapses. I thought it was idiotic to let a young defender on a cheap deal like Dunn be exposed at age 25 to the expansion process in favour of the vet...
But Krug was the newly signed player producing in line with his 0.6 PPG career numbers, had just logged a new career high in atoi and was undergoing team adjustments, which most players take a year to really show their best. Another consideration needs to be the perception of a contender exposing a new addition to the expansion process, you don't attract free agent signings to a small market team by treating the players that do choose to sign with you poorly.
I doubt we ever know how much Berube/Armstrong/pro scouts opinions influenced Krug vs Dunn staying with that last defenseman protection slot (or if the expectation was Tarasenko would be chosen over Dunn because the Kraken should be drafting a winning team, rather than a team expected to be in the basement and trying to choose young players over the BPA). I'd really love to hear how some of that discourse went down, especially seeing how the outcome has looked for us now...