This is not what
Wayland does, it is what a particular display server with Wayland support decided to do.
Second, just to be clear, this only discusses mouse cursors on the desktop - not the content of windows, and in particular not games even if they have cursors. Just the white cursor you browse the Web with.
Anyway, what you refer to is the legacy drm interface that was replaced by the atomic one. The legacy interface is very broken and does not expose new hardware features, but it did indeed handle cursors as its own magical entity.
The atomic API does support tearing updates, but cursor updates are currently rejected in that path as drivers are not ready for that, and at the same time, current consensus is that tearing is toggled on when a particular fullscreen game demands it, and games composite any cursors in their own render pass so they're unaffected. Drivers will probably support this eventually, but it's not meant to be a general solution.
The legacy API could let some hardware swap the cursor position mid-scanout, possibly tearing the cursor, but just because the call is made mid-scanout does not mean that the driver or hardware would do it.
> but it does add an average of 1 more frame latency
If you commit just in time (display servers aim to commit as late as possible), then the delay between the commit and a tearing update made just before the pixels were pushed is dependent on the cursor position - if the cursor is at the first line shown, it makes no difference, if on the last shown, it'll be almost a frame newer.
Averaging cursor positions mean half a frame of extra latency, but with a steady sampling rate instead of rolling shutter.
Proper commit timing is usually the proper solution, and more importantly helps every other aspect of content delivery as well.