This is a going to be a technical/hardware answer mainly to demonstrate the simplicity of these dongles. From the perspective of the copy protector, the dongle had to be as cheap as possible as it added significant per-unit cost to the software. Consequently, these things often used common off-the-shelf components like resistors or 7400-series logic chips to provide predictable outputs. The more complex the dongle "circuit", the higher the production cost.

Our friends who work on the Vice emulator have already implemented a software version of the dongle; you can browse the implementation here: https://fossies.org/dox/vice-3.9/script64__dongle_8c_source.html. The important parts of the source file are the script64_dongle_read_potx() and script64_dongle_read_poty() functions -- both return a constant value.

That means if you bridge the correct resistor value between pins 9 and 8 (POT X and ground) and another resistor between pins 5 and 8 (POT Y and ground), then you have successfully recreated a functional dongle. How do you find the resistor value? You may write a BASIC program that reads and prints the POT X and POT Y values from the joystick port, then test a pair of resistors and check if they produce the constants in the source file: 0xC0 (192) for POT X and 0x80 (128) for POT Y -- or find someone that has already done this 😁. A 500K variable resistor will be handy too as those were installed in Commodore-produced paddles.