In my opinion, there are two big things holding Lemmy back right now:
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Lemmy needs DIDs.
No, not dissociative identity disorder, Decentralized Identities.
The problem is that signing up on one instance locks you to that instance. If the instance goes down, so does all of your data, history, settings, etc. Sure, you can create multiple accounts, but then it's up to you to create secure, unique passwords for each and manage syncing between them. Nobody will do this for more than two instances.
Without this, people will be less willing to sign up for instances that they perceive "might not make it", and flock for the biggest ones, thus removing the benefits of federation.
This is especially bad for moderators. Currently, external communities that exist locally on defederated instances cannot be moderated by the home-instance accounts. This isn't a problem of moderation tooling, but it can be (mostly*) solved by having a single identity that can be used on any instance.
*Banning the account could create the same issue.
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Communities need to federate too.
Just as instances can share their posts in one page, communities should be able to federate with other, similar communities. This would help to solve the problem of fragmentation and better unify the instances.
Obviously there are plenty of bugs and QoL features that could dramatically improve the usage of Lemmy, but these two things are critical to unification across decentralized services.
What do you think?
EDIT: There's been a lot (much more than I expected) of good discussion here, so thank you all for providing your opinions.
It was pointed out that there are github issues #1 and #2 addressing these points already, so I wanted to put that in the main post.
An instance closing is not as common as you think it is. And a good way for it not to happen is to not "saturate" the same three intances by registering only in them and chose smaller instances instead. Or, if you have the time and ability, create your own instance.
Many of the instances that close do so because they become too big for the admins to handle.
Do you really think the average person knows or cares about that? No, of course not. They will congregate on the most populous instance so long as it continues to support the traffic.
Then there should be more threads to make newcommers aware of this thing. That (to avoid relatively large intances) is one of the first things I learn when I had my first account on mastodon around 2018. It's common knowledge in other platforms and something that was explained to twitter refugees that came to mastodon and other microblogging fediverse project last year.
you don't have to join big intances to interact with the fediverse. Sometimes smaller intances have better and bigger federation than larger ones, which are often defederated from many instances over their problems moderating their users