I think "file" is wrong. (I have the same kind of misleading output :
"ASCII cpio archive ..." )

You can try to you use "unmkinitramfs" on your inird.img (unfortunately "cpio" 
does not work to fully "unarchive" this kind of "multi-segments" archive) and 
check the size.
I have "lz4" initrd.img files around 80MB. If I uncompress/unarchive them with 
"unmkinitramfs", I get around 260MB of files and folders.
If I remake initrd with COMPRESS=gzip in /etc/initramfs-tools/initramfs.conf  I 
get initrd files a bit smaller (around 74 MB)

So I think update-initramfs (and the invoked script mkinitramfs) are doing 
their job.
The "initramfs unpacking failed: Decoding failed" error might just be a 
cosmetic error from grub or kernel.

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https://bugs.launchpad.net/bugs/1835660

Title:
  initramfs unpacking failed

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