Fragmentation is certainly a problem if you’re looking for Reddit-style cohesive communities, how much of a problem it is remains to be seen in my opinion. The risk with trying to do things the Reddit way is that one or two large instances become dominant and you’ve just got Reddit all over again.
One potential solution that I’ve been turning over in my mind is the concept of “meta communities” - collections of smaller related communities across the fediverse that can be subscribed to and interacted with as if they were one. Users could potentially vote on a smaller community being admitted into the meta community, or there could be some other requirement. It could even be done locally by the user through a browser extension. It’s not perfect but it’s maybe something to explore.
Alternatively we just get used to more compact communities again. Let’s be honest - do we really have to know everything, all of the time?