I can confirm that changing the #brave-horizontal-tabs-update to enabled does make the tabs a reasonable size, but then it uses the (what I find to be) very ugly pill view, and it doesn’t work with many themes. I had that flag disabled, because the old style actually worked, and didn’t take up huge amounts of vertical real-estate.
So while enabling that flag is a work around, it’s not a fix.
This needs to be fixed, not just worked-around.
Brave should just do away with the dumb ugly pill design and make this the default again. Clearly they’re not putting much effort into this design anymore, but the other design is so hilariously bad that I’d absolutely consider using other browsers as my daily driver if I were forced into it. And I think I’m far from the only one that feels that way.