Instances should be divided more into groups of Communities. So they theoretically don't grow infinitely, only as high as the "group" if communities grows. Ex. An NBA or Sports instance containing /c/NBA /c/NFL /c/NHL and all the related teams. Or similar to the programming.dev instance all being programming and development. While these would grow it would grow at a much slower rate than everything in one instance and be much more maintainable.

Of course this is somewhat of a social construct so everyone has to be in agreement with how to handle this and move accordingly, which won't happen.

Long-term long-term for federation there has to be a distributed computing solution that allows the users to contribute to hosting.

You're not taking into account that some people are dumb as fuck. They will sit on one instance and when the instance goes down , they'll start whining