I had the same problem a while ago:
I don’t remember if importing a backup-copy of my database was enough but I think there wasn’t much to it.
You could try step by step and check if a newly created database does work with challenge-response. That way you could see if it works in general.
I had a problem with activating this setting and then saving.
It has been working since then without problems. I do have the same version, revision and Fedora 32 as well. I do use the same kernel but I use Qubes 4.1 and you 4.0, I think. It shouldn’t matter.
The one thing I know I did was import a copy of my database because I named it something like latestkeepass-yk. You could try importing and report back.
Good luck!