Hacker News Reader

I think you are correct now; a number of fediverse projects actively seek to avoid getting big. For example pixelfed creator has closed signups on his instance and mastodon encourages people to sign up for different instances (and I a number of existing mastodon instances has also closed signups because they are big enough, and everyone except banned users and instances can just federate anyways.)

Think the idea is to have lots of small communities which can communicate with one another. If this ever takes off, I am sure that for-profit instances will eventually be founded as well and they may/may not contain ads as part of their business model.

That's the point of federation, so you don't have to worry about scaling any one particular host. As long as the network can scale, the community and product can grow. That will depend onhaving efficient clients and servers, and a well-designed protocol.