I think the benefit of federation is that nobody controls the whole ecosystem. The downside of federation is splintering.

Communities should be more unified across servers, especially for niche ones. I want to see an active Metroid community, I don’t give a crap what instance is hosting it (or if it’s a mostly-opaque medley of instances) so long as I’m federated with it. This is probably the biggest UX misunderstanding new users have.