This is a compelling concern but I think I prefer usability and speed over protecting my files from every other app if that will slow the app down. My files are in the open and unencrypted at rest on my desktop devices, after all.
I don’t feel that I am likely to install apps which might be scraping plaintext files for sensitive data.
(In your example of passwords I think they should be in a secure system like a password manager; even letting Google manage them would be better than trying to manage them in Obsidian)
Reading how that works, it sounds very slow? Nextcloud and other apps utilize this feature (pull the file, create a sharing copy, generate a share link, etc)