The biggest issue I see is building, because builds take a long time and you don't want to stand around using the worst input imaginable (touch screen) to do nice builds.
Other than that, it seems like they're making a Pokemon GO clone with Minecraft mobs (collect passive mobs and fight hostile ones).
W.r.t to your "Pokemon Go::SW Christmas Special" you're absolutely wrong, while the initial popularity didn't stick around, the game is at a very strong and profitable point and the ideas introduced in the GO app have moved into actual Pokemon titles, notable the "no fight, just throw to catch pokemon" mechanic was ported to Let's Go Pikachu/Eevee Switch remakes of Gen 1. Basically the opposite of the SW Xmas Special!
As a (modded) Minecraft player there's a lot to be excited about in this concept, but my suggestions would be
* Allow players to explore the virtual-real-world that they've visited with the phone app from a console or computer. So you can "tag" your local park, a cool bit of a forest, etc, then go home and explore a digital version.
* Allow players to build at home
The point here would be that you go out side, collect building materials, catch some passive mobs you want, then go home to take advantage of these collected goods to start a pretty build.
This would also fix UX issues because the goal of using the phone app would be moving around, collecting, interacting, NOT standing still and building.
I'd play the heck out of that, it'd be another reason to get out of the house and an interaction between phone game and console/pc game could be huge.