Could you explain why this is a problem?

That option is only supposed to toggle the highlight of the selected faces. But it fades the entire geometry when the option is on. It shouldn't happen at all. This is why I reported it as a bug.
It happens in 2.82 release as well but it's subtle.

The change in master is caused by rB804e90b42d72: DRW: Color Management improvement.

The blending function in source/blender/gpu/shaders/gpu_shader_image_overlays_merge_frag.glsl isn't handling alpha properly.

This resolves the overlay issue but causes a black background.

diff --git a/source/blender/gpu/shaders/gpu_shader_image_overlays_merge_frag.glsl b/source/blender/gpu/shaders/gpu_shader_image_overlays_merge_frag.glsl
index e8323520af5..dc6e68415bd 100644
--- a/source/blender/gpu/shaders/gpu_shader_image_overlays_merge_frag.glsl
+++ b/source/blender/gpu/shaders/gpu_shader_image_overlays_merge_frag.glsl
@@ -33,8 +33,8 @@ void main()
 
   vec4 overlay_col = texture(overlays_texture, texCoord_interp.st);
 
-  fragColor *= 1.0 - overlay_col.a;
-  fragColor += overlay_col;
+  fragColor.xyz = (fragColor.xyz * (1.0 - overlay_col.a)) + (overlay_col.xyz * overlay_col.a);
+  fragColor.a = min(fragColor.a + overlay_col.a, 1.0);
 
   if (display_transform) {
     linearrgb_to_srgb(fragColor, fragColor);

@Campbell Barton (campbellbarton) The blending IS done properly. This was done on purpose. The issue is that now we are doing blending in linear space for correctness which change pretty much all UI colors which use alpha blending. So we should patch the theme instead of the blending function.

@Clément Foucault (fclem) are you sure about this? Using linear color didn't impact alpha handling in other areas of Blender IIRC.

Blending color in linear space shouldn't have to change alpha strength.

A white overlay on a black surface seems much lighter than it should be.

• The default theme alpha of 7.06% alpha results in 29.41% white.
• Increase the alpha to 18.43% for 50.00% white.

Toggle edit-mode on this file.

Alpha handling is totally dependent on colorspace. In your example 0.07(linear) ^ (1.0/2.2) is almost 0.3(srgb). Because everything is now rendering in linear space all blending is also done in this space. Which is why brighter colors are more blended by alpha blending than before (visually speaking but linear values are correct).

A 50% white in linear (radiometrically speaking) is not perceived as Half grey by human eye.

This is also why I did a trick to blend background colors to have perceptually pleasing gradient (i interpolated in non linear space).

But here we cannot have a one liner patch because the blending is done in linear space by opengl and compositing is done much further than where this happens.
We cannot autopatch theme because it depends on the perceived color.

Reminder that this move to linear colors is to make things move in the direction of HDR support / better AA / better colormanagement in general.

Even with the difference between perceptual-brightness/RGB-value the change in brightness seemed very strong.

Although changing the face overlay color to black doesn't have the same impact.

Committed tweak to the theme to reduce the intensity for bright colors.

Speaking of face overlays, it was turned to white.
White overlay makes vertices/edges selection dim due to lower contrast with brighter faces, so we changing it to black in theme settings.
We also constantly keeping highlight edges checkbox in mesh edit mode overlays turned on to percept selection properly.