This is expected behaviour though?

Realisticly, it would be beyond wrong to have every file in ram at all times, or process's every file to any extend when it is not in immediate use or you are in a search field or link/back link Dialog.

Try copy pasting 2GB of data into your vim and you will find it takes quite a while for everything to be pasted. When you drag and drop via the UI in obsidian and you do that with thousands of files, then this is not very surprising to slow your application. Assuming obsidian wants to make the files available as soon as possible, I presume it parses/indexes them immediately one after the other instead of one big block.

My vault is about 1.5k files, all interlinked in some way (ignoring larger pictures or PDFs). Making a new vault and drag and dropping all of them in lags quite a bit for quite a while, but once everything is loaded its fine.