4k monitors with M1 only provide you the ability to use FHD 1920x1080 on HiDPI. There is nothing else possible and yes for 4k monitors that means really large text. The other option is to use switchresx, quickres, rdm etc to get the other resolutions but again at low res. There is unfortunately no resolution to this problem with Displaylink. Refer to the thread
here on displaylink regarding the topic. You can vote for requesting displaylink provide 2560x1440 HiDPI
here but after 9 months and no replies I guess that it is very unlikely. Hope that helps.