Sorry if this question seems stupid, but you seem to really know what you're talking about.
My understanding is that the main issues TERFs have is protecting women's spaces, and that by having a vague or arbitrary definition of womanhood it erodes those spaces.
I personally would like to see a society that's far less focused on gender and minimises that kind of segregation outside of medical necessity. But I know that's quite extreme and I don't have a "perfect" solution, assuming we're going to keep things like women's only gyms, domestic violence shelters, and professional sports.
Judging based on "passing" is clearly transphobic and ignores any kind of intersex/non-binary presentation. As well as some masculine featured afab women somehow failing. And basing on biology is clearly flawed. So if it's not too much trouble what would your suggestion be?