VPN does encrypt your data! From your computer to the VPN server. So no can see the traffic or DNS query in between.

It also protects from the data that's being collected on you based on the IP, you can't always trust the other side of https to be nice :) loading a small image from a different side can also reveal your IP even if you have all kinds of adblocker/ tracker.
And it also helps bypass internet censorship.

Anyone connected to the same Wi-Fi network can see this info.

VPN can protect you from this so that anyone sniffing

Who are you trying to hide your domains from? The government? Hackers? If either of those is the answer, going after the VPN company or even posing as a VPN company is a great way to collect domain usage from people that want to keep that info hidden. Not saying that’s what’s happening to your VPN company, but you can’t really prove that it isn’t happening either.

I do agree with your point about those VPN companies, but VPN like Mullvad goes as far as:

• Running servers with no disks (Running on RAM) - https://mullvad.net/en/blog/2022/8/1/expanding-diskless-infrastructure-to-more-locations-system-transparency-stboot/
• Getting audited by a 3rd part - https://mullvad.net/en/blog/2023/8/9/infrastructure-audit-completed-by-radically-open-security/