Yet here's a drawback: you can't handle cases where the domain doubles both a service that you depend on and as a source of advertising and tracking that you wish to block. Facebook and Google are the two that come most readily to mind, but there are countless others.

EDIT: my apologies, I misread your comment and assumed you meant host-based blocking. You seem to be advocating for the proxy to parse the page contents and do the ad-blocking there, before serving it on to you. It's an interesting idea. At scale it would have some significant hurdles to overcome WRT TLS, but I am nonetheless intrigued.