Separate equipment from key items
I like Paper Mario's inventory:
On this screen are items that can be immediately used. You'll notice in the left sidebar is a "important things" tab for items that are merely story-related. In VOADI I think only items that can be used should be in one "equipment" screen, like the stick and the vacuum, where other quest items like B12 and tears should be in a separate part of the inventory ("key items", maybe).
This is not just the inventory, though. We can overhaul the item trade UI. Back to Paper Mario, here's an example.
The flower has normal dialogue. He's asking you for something, though. Once his dialog finishes, you have the ability to select an item. The item list is always filtered: it shows either normal items or key items. For voadi, I think we only need to show key items.
I picked this example because it shows multiple items, but often there is only one to choose, and that's okay. You can select it, or press B to cancel. I think this is a great system, much better than the character noticing you have something and asking you "can I have this? (yes/no)".
When you have no items, I'm pretty sure you just see an empty menu which you have to back out from. This signals that you don't have the right thing without the character having to call you out on it.