But the downfall I see is now we have to rely on multiple instances to keep lemmy as a whole running. Whereas with unfederated they are larger scale and probably are more efficient/cost effective with backups. Where as a smaller instance may not be able to make it then we loose lots of data.

I think this would be good if we can migrate data. Say for instance if my instance had to go under for finance reason I can post the “data” files and someone could fork my instance and everything is then recovered. Or maybe even add to existing instance.