Fwiw, this is pretty much entirely untrue.
> Matrix identity server, which is required to have federation,
The identity server is not required to have federation to work. All it does is let you optionally discover users on Matrix by their email address or phone number.
> 3rd party identity server operated by the Matrix organization retains a list of your usernames.
Not sure what this means, but the identity service does not retain a "list of your usernames". All it does is keep track of email->matrix ID mappings for users who have published them. When you look up an email address (or phone number), a hashed representation is sent to the service, and even then, they're not retained.
> They don't tell you up front about this
We do; to use the identity service you have to click through a very explicit GDPR terms of use which explains precisely how it works. You only get prompted with this when you actually use the identity service though (i.e. when inviting someone by email address) which might be why you've never seen it, however.
> You have to really pay attention during setup to realize that the federation technology relies on a bastion operated by matrix.org.
Again, Matrix federation does not depend on identity servers (and I kinda wish we'd never even implemented the feature, given how confused and upset people get about them).
https://matrix.org/blog/2019/09/27/privacy-improvements-in-s... goes into this all in much more detail.