I wasn't aware that this is an issue. It seems to me that the existing feature is 'text-based' folding rather than 'code-based'. I wouldn't notice as indentation very closely follows the code block structure in most of the code-bases I edit.
It could be useful to open a feature request for 'code-based' folding, if the existing 'text-based' one is considered to be working as intended. That way we're not fighting over a definition but rather showing demand for a new capability that everyone would agree is absent.
Editors like visual studio IDE properly fold code so that it results in a compact layout once it's folded. I would guess indentation-based folding could be made more compact and not take unnecessary lines.
It could be useful to open a feature request for 'code-based' folding, if the existing 'text-based' one is considered to be working as intended. That way we're not fighting over a definition but rather showing demand for a new capability that everyone would agree is absent.