Your reasoning is off. You don't have "10^3" states if you always unwrap the return values at the call sites (which implies returning if it fails). It's literally the same as exceptions, just that the errors get encoded by (re-)using the type system. You'll have the exact same types for your local variables -- the only difference being that you would put a '?' (or similar) after function calls, to unwrap the return values.

The advantage of this ADT approach is that you can store error unions more permanently when it makes sense. It is not additional syntax, unlike exceptions. In that sense ADTs are the simpler approach of the two. If there is any "explosion of complexity", then it is exceptions where you get that -- because you have to express your code using multiple mechanisms (types vs exceptions), and possibly have to switch between the two when refactoring.

I say that as someone who doesn't think highly of either approach. In my view, plain error values are fine, there isn't any clever language solution needed. If you find yourself checking return values a lot (as opposed to storing error values in handles and checking them at strategic locations), that can hint an architectural problem.