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Let's start with where we seem to agree: I agree that having small niches within the fediverse is a good thing, and because of how it works it's likely that that will be much easier to maintain here than it would in a centralised network where everyone is forced into the same large group by default. If you want an instance where you and your friends or niche community can connect privately, and still import posts from around the fediverse, you're free to do that. The power of this system lies in its ability to accommodate any size of subnetwork without them becoming totally isolated.
Personally I've got a bunch of creative projects, and if I get to the point where I'm making major public releases, I've wondered how I plan to make a forum. I don't really want it to be siloed away, and I don't want it to be on someone else's service where they could shut it down. The obvious solution is to start my own fediverse instance. That's actually only just occurred to me. This is why I like debating these things - it helps me learn and clarify my thoughts. If we just agreed to disagree then that wouldn't have happened. ;) Well, maybe eventually, but this conversation sparked that thought.
I imagine the growth of the fediverse is going to be slower than a comparable capitalist enterprise, because it doesn't have the same insatiable need for growth. That's an important consideration, and it's why the sudden implosion of so many centralised corporate networks happening right now is important to the fediverse, because as that happens it will absorb more and more of the critical parts of those networks. It will grow, and because of its relative stability the more share it is likely to retain, until the mainstream is so fed up of riding the merry-go-round of imploding centralised options they will migrate here en masse.
Here's where we still seem to disagree:
What is that "level of capability" referring to? Because it sounds like you're using the phrase "level of capability" to avoid saying the much simpler phrase, "size". If it means something else, I'm curious to understand what you mean.
And I'm not arguing for my "personal preferences". You're the one that appealled to "Personally, I’m fine with the size the Fediverse has", not me.
I'm talking about how social networks grow and how they influence each other. I'm talking about material reasons why the failure of reddit and other networks affects the fediverse on a fundamental level and giving you a clear A to B on how those effects occur. It's fair to say, "but I like it smaller" and it's similarly fair to say, "that's irrelevant to my point".