I feel like he has to become the villain especially since they "averted" the prophecy of Kratos dying... for now
Loki is a villain through and through, I mean Atreus as a child murdered a defeated Modi in cold blood, disobeyed his fathers orders as a teen and started a realm ending war for shyts and giggles based off an obscure prohecy regarding his own greatness, which led to the death of his best friends brother... dude is at best dangerously mischievous and at worst hes gonna grow into being a dark god/giant/mortal hybrid that threatens EVERY mythology
We know that Gods are found in every realm... but so are Giants. Theres Giants in Greek mythology (not the Titans, the Gigantes that started the second war for Olympus), which havent been used in the series before... theres Giants in Celtic mythology (which was hinted at as being Mimirs homeland) like Balor, Dagda and the other Celt Gods... and even in Egyptian and Japanese myths like the serpent Apophis or Susanoo and them. All places thats already been foreshadowed.
Whose to say Atreus doesnt go on a quest to "free" these realms searching for his people since he is the "champion of the giants" and ends up causing absolute CHAOS everywhere he goes, with only one God who can put him down for good....Kratos