Big players are pushing for adoption of the USB-C audio adoption. And when I say big, I'm talking about Intel, Google, Apple... Pretty big players.
If you try to use a pair of headphones that only have a USB-C connector but no DAC, you will be rewarded with silence. Which, I admit, can be relaxing at times. The bottom line is that the Pixel 2s do not output analog audio.
But the good news is that with such big players pushing adoption it shouldn't be too long before we see more choices in headphones that comply with the standard.
In the meantime my IEMs sound pretty good using the dongle.