Democracy. All people want it, but many people struggle with it. The comments up in this thread are all basically talking about this topic: People have to agree on what their society should be about. And that ~~can~~ is hard work. It means reconcile and debating. It is not very different from every other Federation like the EU or Germany with its 16 states. Here is an Example:

During COVID, Germany - as a Federation of 16 states - all had to decide on what is the best way to recognize the threat, mitigate it, and build up protections. In the Federal Republic of Germany, that meant that the Goverment took over some aspects, but many things were left to the states (Instances). People had a hard time seeing how this is a good thing. Many people - esspecially conservatives - ask for a strong man and are not able to hold long discussions. They want pragmatic decisions even if it will not guarantee the best outcome in the long run.

The good thing about a Federation is/was, that you have 16 "Working groups" running to the same goal, trying to find their best solutions. Some come up with great ideas on their own, some get inspired how the neighbors do it, some take an international approach and look into europe and some are just overwhelmed with the given task and struggle. People were really put off how "Everyone does his own soup" and some were really angry why there was no central plattform. Like China. Where one man said what to do. Not realizing that this could mean, that this one person has either the right solution, or is ending up locking down whole cities and incarcerating people into camps. For Years. People thing highly of centralized approaches, but do not see how bad it can go - and Germany went to that in a very bad example not only 80 years ago. Yet, we still struggle to see the benefit in Federation as soon as problems arise. In normal times they love Federation.

So my point would be: Federation is great, but the huge downside will be, that we have to talk a lot. Maybe even include a voting tool. Make it secure enough that it can not be abused too much (because it will the bigger the instance gets). We have to define or at least trust certain people, that they will take care of our instances, that we can get behind. And if not, - contrary to living in a Federated country - we are at least able to move to the next instance without a pain (if the instances support account moving one day). But people will get tired of talking too much. They want action. They want a simple and easy solution and continue their life. Some will invest a lot of time into making the instance bearable for many, while some users will just sit in a soft crib, not contributing anything and not understanding why those people "in the glas palast" will not come up with the right solutions. Because they are not debaters. They want pragmatism and will accept more authoritarian instances, if it can make them feel like they are getting lead in a strong way - disregarding if it will play nice with others or not.

In the end, Federated Systems will be a mirror of our societies, closer than what plattforms were ever be able to reflect. But this will come with the exact same problems. I can see a bright future for federated systems if enough people invest their time in it to design the experience what was previously done by worker in multi billion dollar corporations. Now people are given the tools to create their own federated experiences in a digital place. Die instances will prosper by it. Some instances will lose. Some software will burn. Some instances will be too small to have a solid team to answer all this. Some users will be appalled by all of this. But if a critical mass of people can survive and is willing to carry the stick and some form of general consent can be reached via a declaration and a living and growing and changing body of rules, that will adapt to the new challenges of time, it will be THE BEST system out there.

Except if you think a communistic/chinese approach with a central figure and a central single party is the best, that will tell you what the right thing is to do and if you do not follow, your are an deviationist and must be handled/expelled. Some people people love that shit. interestingly, mostly only if they were born into this and were indoctrinated into such a system. There is not a single country in the last 50 years where the people where asked and they willingly decided for themself, that they want such a system. Those systems were always created above the heads of the people - as it is their nature of those systems.

A good approach would be several Cartas that can be nested/cascaded that define what people share as a general consent. Two Instances agreeing into a strong bond of the same value. Another one that wants to join them. Some instances might group as The United Instances of the Fediverse with some basic rights that are not debatable and some views that might change over time. Some communities maybe want to be a left alone and do their own thing with a unorthodox decision tree. Some will not share this carta, so they will come up with their own what would lead to interesting paradoxes or even expose some fallacies in some communities.

Time will show how much strength and endurance we have and how worth it will be for us, to govern our self: Put some things in the hands of the Software we want to use (Government), keep some rules to us (instances) and decide for our own where we want to live as a user. In reality - at least in Germany - it took decades to grow organically. Police and Schools is in the hand of the state, for them to decide what to teach (to some degree) and and when to neglect a criminal/unwanted behavior (to some degree) e.g. for what amount of canabis/hatespeech he can be picked up. In the same way will the instances in the Fediverse define for themself where to draw the line and people will move to those places that give them the best balance of having enough freedoms to life a fulfilling life, but not too much freedom that it will end in anarchy. Basically Democracy.

TLDR:

Pro: Democracy

Contra: Democracy.