Side projects will help you learn useful skills and it is the suggestion of OP that it should be used by more companies in place of leetcode interviews.
Btw, a lot of companies don’t use leetcode for hiring. In my last job hunting season, I would guess than less than 20% of processes used leetcode. Pretty far from “most” companies.
The leetcode dance is, at least for me at this point, much lower effort than starting a side project on the understanding the code I produce will be reviewed during interviews. It's like Sudoku, once you've done a "few", you get to the point where you're able to solve them quickly.
The nice thing about leetcode it is easy to bound the time to what you can handle. I do one puzzle a week and set a timer for 20 minutes. Then I get the answer and browse the forum. It's basically the equivalent of solving the Sunday crossword for me, and it keeps my algorithm skills sharp. Probably no worse than burning a lunch hour on HN.
I took a look at leetcode when I was interviewing and decided it was a waste of time for me to learn that dance. I was happy with my chances with the companies that didn’t use it in their interviews. And it worked out fine.