I noticed that Obsidian’s iCloud sync lacks Advanced Data Protection (ADP) support. As you can see in the screenshot, the file size of the Obsidian folder is much larger than the picture, indicating it’s not part of ADP.
It’s not clear to me how the screenshot demonstrates what you’re saying. I don’t see anything obviously related to Obsidian in it. What is it a screenshot of? Is your vault stored in iCloud?
Advanced Data Protection is nothing that concerns the individual applications as long as they use the file system. The applications are not aware of the encryption and don’t need to, because the operating system does the encryption and decryption before and after sync.
Obsidian just sees a file system. If you switched on ADP, then you are fine. All data in iCloud folders is encrypted.