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Based on the bit of research I have done, along with creating https://lemmyonline.com/
It seems you are correct. A small handful of servers contains roughly 95% of the user-base.
I think the intended way for this to work, certain communities can be hosted on their own servers. However, it appears most of the popular communities migrating away from reddit, all flocked to lemmy.world, which is likely contributing to it being overloaded.