How to fix the Black Crush / Black Level / Low-light splotches issue on MIUI

I originally wrote this for users of the POCO X3, though it should apply to most Xiaomi devices with LCD displays.

Why?

Because Xiaomi used one of the cheapest HDR10 120Hz LCD panels available for the POCO X3 it suffers from poor contrast when displaying dark images, especially at low brightness levels causing the image to seem dull, gray, splotchy or overpowered by the backlight.

The Solution

(For MIUI Only) Go to Settings > Display > More Dark mode options and make sure Adjust text and backgrounds automatically is disabled. For some reason this setting is enabled by default and artificially darkens the screen and lowers the contrast level, ruining picture quality.
Optionally, you can also disable Adjust wallpaper to Dark Mode if you don't want the same darkening filter applied to your wallpaper.
Next, go to Settings > Display > Color scheme and select Standard, this option disables MIUI's image processing and displays images as they are supposed to be, reducing the black crush while also lowering latency for smoother animations and better response in games.

If you're running a custom ROM or the above instructions didn't fix the issue for you, try installing Screen Balance. The top slider can be used to change the colour of the screen tint and the second slider brightens dark colours, Try opening http://www.lagom.nl/lcd-test/black.php in split-screen and set the second slider to a value where all of the squares (except for the top row) are visible and distinguished.

Written 30 Dec 21, edited 02 Jan 23