Do you know what's taking up the space? You would have to go to 'iPhone Storage' and see if there's anything that can be stored in iCloud. For example, if the majority of the storage is Photos, then yes, it'd probably work to downsize and use the optimize storage option. The full-size originals would live in iCloud, and a smaller optimized size would live on your phone. If it's apps and games taking up most of the space, then no...it wouldn't work to downsize, as they cannot be stored in iCloud. You'd be constantly deleting or unloading apps to make room for others as needed.
Also, if you do downsize, you would need to shrink your usage on your current phone first in order to be able to do a backup and restore. It'd probably have to be somewhere around ~100-110GB, since some space is reserved for the OS/system.
If I were you, I'd stick with 256GB. The used storage is only going to keep growing, unless you have a lot of "junk" you can get rid of (unused apps, unneeded videos, etc).