I'll take the opportunity to self plug:
I've been working on a solution to help bridge this gap of having to blindly trust VSCode extensions, planning to eventually also release it as open source
yeah there is! it's been in the works for a number of years, and they're talking about Q1 2023
but it will still leave all the vscode.* APIs open, so extensions can still do things like read any file in the filesystem, or run programs like they do today
it's a start and an important step, but definitely not a cure-all
You're welcome to sign up for early access at https://coderguard.io/
As I'm currently mainly looking for user feedback