Coflein suggests this is an Iron Age defended enclosure. The bank and ditch is only semicircular, because the other side used to butt up to the lake (it is now slightly further back).
Marie Trevelyan relates this story to the location:
A curious story is attached to Llyn Gwyn. St. Patrick passed it on his way to visit St. David. He was accompanied by another saint, and when they reached this lake one of them suggested resting awhile. This was done, and during the halt the saints discussed religion. Coming to a controversial point, the men grew irritable, and St. Patrick was very angry. Several Welsh people overheard the religious quarrel, and expressed surprise and annoyance. St. Patrick in spite turned them into fishes. One of the party was a woman, who was transformed into a white lady. She was often seen accompanied by flashes of light. On account of this insult to St. Patrick, the sun never shines upon the lake but during one week of the year. [William Howell, "Cambrian Superstitions."]
And to think we say someone has the 'patience of a saint'. They clearly never met St Patrick.