Not exactly, if you want to benefit from having a more detailed LOD representation with caves and overhangs, LOD chunks need to rely on the same generator which is responsible for generating the regular 3D terrain data (instead of relying on the 2D generator, which just outputs a heightmap)...
I mean that this can be only some sort of adaptation for the current RW generator (a kind of optimisation - if current generator uses heightmaps it can generate LOD faster), the LOD itself and volumetric generators (and caves) will require some sort of density function to generate LOD.
It would work for distant LOD chunks, but currently there is no way to have different LOD levels per chunk (handling that for so many chunks would increase memory overhead and degrade performance even further).
This is one of things sparse voxel octrees are created for - different LOD for chunks on different distance (and faster LOD generation for distant chunks). Voxels are stored hierarchically inside a tree, with 8 leafs per node, so for chunk with 32 blocks there will be 6 hierarchical levels, but these levels don't need a full grid of voxels.
There are 2 important notes about such trees:
- Not all voxels and levels need to exists, missing data will safe a lot of memory;
- It can have dynamic LOD based on distance for free, its just its nature.
This technique can be also applied to marching cubes. Some games already use it (blockscape, for example), especially for big/infinity worlds. And when generator need to generate distant land - it will generate only required level of octree instead of full grid generation, this is why this generator have semi-equal generation speed - with twice larger area we will require same amount of voxels as for the small one, they will just be bigger. This actually means very large possible distance (up to some kilometers and more, blockscape for example had 8 kilometers with similar technique)
Blockscape appeared in 2012, and this method worked fine these days, it will not cost too much performance, and probably will be even faster that the current one