From what I remember dev didn't say anything about use dupe charecter in rarity upgrade.
They only said player will use less mats if target charecter has high skill lvl and slot.
And from what they annouce in maint note, player don't have free choice to upgrade.
They set target charecter in this system, like in bloom system in the past.
This should mean chrecter that gone through this system will be actual rainbow not just pseudo.

Anyway this is only my thought.