Whenever I'd contemplated systems like this I had assumed that the communities and the user account stuff would be seperate to one another. It seems off to have first order and second order communities based on the instance you join. I think it would make more sense to join an instance that has no real communities (other than stuff like instance related news) and then connect to the instances that have communities you care about. I'm a bit too tired to articulate why exactly right now. I would not be surprised if we end up there eventually though even if it's not enforced by design.

This article explains it pretty well. Though it focuses on Mastodon and similar Twitter clones, which all suffer from being clones of a dog shit idea for social media.

Op-ed: Why the great #TwitterMigration didn’t quite pan out

Largest shortcoming is that in order to see any content, you (or someone else on your instance) needs to follow someone/thing else from a different instance, and the only way to do that is to pour over hundreds or thousands of other websites. This means that objectively, the best experience for a new user is to join the largest instance available, which kind of defeats the purpose of federation. Also, 99%+ of users couldn't care less about federation and there aren't (m)any other selling points so nobody cares to leave the platforms they're already established on.