I'd be fine with letting an extension take over that niche ... if they made an API that let it replace the horizontal tabs instead of only being able to duplicate the tabs in the sidebar. Or even a way to configure that as a user.

That is how tree style tabs worked before Firefox switched to webextensions. And when Firefox switched to the we extensions API, a ticket was immediately opened requesting an API allowing hiding the horizontal tab bar. But despite some initial interest, nothing really ever happened with that.