Confirmed: context-mode cannot intercept MCP tool responses. The PreToolUse hook (hooks/pretooluse.sh) matches only Bash|Read|Grep|Glob|WebFetch|WebSearch|Task. When I called my obsidian MCP's obsidian_list via MCP, the response went straight into context — zero entries in context-mode's FTS5 database. The web fetches from the same session were all indexed.

The context-mode skill (SKILL.md) actually acknowledges this at lines 71-77 with an "after-the-fact" decision tree for MCP output: if it's already in context, use it directly; if you need to search it again, save to file then index. But that's damage control — the context is already consumed. You can't un-eat those tokens.

The architectural reason: MCP tool responses flow via JSON-RPC directly to the model. There's no PostToolUse hook in Claude Code that could modify or compress a response before it enters context. And you can't call MCP tools from inside a subprocess, so the "run it in a sandbox" pattern doesn't apply.

So the 98% savings are real but scoped to built-in tools and CLI wrappers (curl, gh, kubectl, etc.) — anything replicable in a subprocess. For third-party MCP tools with unique capabilities (Excalidraw rendering, calendar APIs, Obsidian vault access), the MCP author has to apply context-mode's concepts server-side: return compact summaries, store full output queryably, expose drill-down tools. Which is essentially what you suggested above.

Still very high value for the built-in tool side. Just want the boundary to be clear.

Correct any misconceptions please!