A quick reminder: libei is the library for emulated input. It comes as a pair of C libraries, libei for the client side and libeis for the server side.
libei has been sitting mostly untouched since the last status update. There are two use-cases we need to solve for input emulation in Wayland - the ability to emulate input (think xdotool, or Synergy/Barrier/InputLeap client) and the ability to capture input (think Synergy/Barrier/InputLeap server). The latter effectively blocked development in libei , until that use-case was sorted there wasn't much point investing too much into libei - after all it may get thrown out as a bad idea. And epiphanies were as elusive like toilet paper and RATs, so nothing much get done. This changed about a week or two ago when the required lightbulb finally arrived, pre-lit from the factory.
So, the solution to the input capturing use-case is going to be a so-called "passive context" for libei. In the traditional  "active context" approach for libei we have the EIS implementation in the compositor and a client using libei to connect to that. The compositor sets up a seat or more, then some devices within that seat that typically represent the available screens. libei then sends events through these devices, causing input to be appear in the compositor which moves the cursor around. In a typical and simple use-case you'd get a 1920x1080 absolute pointer device and a keyboard with a $layout keymap, libei then sends events to position the cursor and or happily type away on-screen.
In the "passive context" <deja-vu> approach for libei we have the EIS implementation in the compositor and a client using libei to connect to that. The compositor sets up a seat or more, then some devices within that seat </deja-vu> that typically represent the physical devices connected to the host computer. libei then receives events from these devices, causing input to be generated in the libei client. In a typical and simple use-case you'd get a relative pointer device and a keyboard device with a $layout keymap, the compositor then sends events matching the relative input of the connected mouse or touchpad.
The two notable differences are thus: events flow from EIS to libei and the devices don't represent the screen but rather the physical  input devices.
This changes libei from a library for emulated input to an input event transport layer between two processes. On a much higher level than e.g. evdev or HID and with more contextual information (seats, devices are logically abstracted, etc.). And of course, the EIS implementation is always in control of the events, regardless which direction they flow. A compositor can implement an event filter or designate key to break the connection to the libei client. In pseudocode, the compositor's input event processing function will look like this:
function handle_input_events(): real_events = libinput.get_events() for e in real_events: if input_capture_active: send_event_to_passive_libei_client(e) else: process_event(e) emulated_events = eis.get_events_from_active_clients() for e in emulated_events: process_event(e)Not shown here are the various appropriate filters and conversions in between (e.g. all relative events from libinput devices would likely be sent through the single relative device exposed on the EIS context). Again, the compositor is in control so it would be trivial to implement e.g. capturing of the touchpad only but not the mouse.
In the current design, a libei context can only be active or passive, not both. The EIS context is both, it's up to the implementation to disconnect active or passive clients if it doesn't support those.
Notably, the above only caters for the transport of input events, it doesn't actually make any decision on when to capture events. This handled by the CaptureInput XDG Desktop Portal . The idea here is that an application like Synergy/Barrier/InputLeap server connects to the CaptureInput portal and requests a CaptureInput session. In that session it can define pointer barriers (left edge, right edge, etc.) and, in the future, maybe other triggers. In return it gets a libei socket that it can initialize a libei context from. When the compositor decides that the pointer barrier has been crossed, it re-routes the input events through the EIS context so they pop out in the application. Synergy/Barrier/InputLeap then converts that to the global position, passes it to the right remote Synergy/Barrier/InputLeap client and replays it there through an active libei context where it feeds into the local compositor.
Because the management of when to capture input is handled by the portal and the respective backends, it can be natively integrated into the UI. Because the actual input events are a direct flow between compositor and application, the latency should be minimal. Because it's a high-level event library, you don't need to care about hardware-specific details (unlike, say, the inputfd proposal from 2017). Because the negotiation of when to capture input is through the portal, the application itself can run inside a sandbox. And because libei only handles the transport layer, compositors that don't want to support sandboxes can set up their own negotiation protocol.
So overall, right now this seems like a workable solution.
 "blocked" is probably overstating it a bit but no-one else tried to push it forward, so..
 "traditional" is probably overstating it for a project that's barely out of alpha development
 "physical" is probably overstating it since it's likely to be a logical representation of the types of inputs, e.g. one relative device for all mice/touchpads/trackpoints
 "handled by" is probably overstating it since at the time of writing the portal is merely a draft of an XML file