Yes. It’s called the X Window System and it’s been around since the ‘80s.
Also the problem here isn’t that iterm2 is trying to emulate terminals, it’s that it’s trying to do something more over the same network connection without making changes to the ssh protocol.
X11 or any network transparent graphics protocol doesn't solve the problems that a terminal solves. how do you pipe data through multiple applications in one command using a GUI for example? nobody has been able to solve that in a practical way yet.
what we really want is being able to pipe semantic data that can be output to some kind of graphical device/interface that uses that semantic information to display the data using nice graphical interface elements.