I think the differing view here is 'natural growth' vs 'forced growth'.

I don't think large servers that come by being large because they're the preferred choice for a given community, topic, reliability, or whatever other criteria become valuable are bad.

I think setting it up so that a new user is told 'You go here, and you sign up on this instance.' and writing all the onboarding stuff to direct them to the mega-instance for the sake of convenience because we can't figure out how to make it simpler or more clear or explain how federation works isn't the right path.

I will admit I do not have a fantastic answer on how to explain to someone who has limited technical knowledge exactly WHY federation is the way to go for communication and that the instance you should pick relies almost exclusively on the reliability of the service (is it fast? does it stay running? is it going to exist in six months?) and the trustworthiness of the admin (are they someone who you can deal with in terms of moderation? do you trust they're not going to use their access to violate any trusts or behave in a way contrary to your beliefs?).

I'm old enough that my first foray into 'federated' content was Fidonet, and which BBS you called 'home' and posted from was almost exclusively a decision based on the local BBS community and the sysop because the messages and software were otherwise exactly the same from BBS to BBS.

So, my bias is that large instances can't be close communities and that larger instances require different and more aggressive and impersonal moderation and the bigger you get the more true both become.