Because the second argument to format_traceback is supposed to be (is documented to be) an exception object.  The fact that it used to work anyway in Python2 if you passed a string was an accident of the implementation.  Likewise, settrace is documented to provide a value, not a string, so the fact that it provides a string is a bug.  That needs to be fixed.

(As to specifically why chain defaults to True, it defaults to having the same behavior as the normal exception machinery.)