Embrace: Threads federate w/ mastodon
Extend: Convince people to join their server via an exclusive feature or popularity or whatever
Extinguish: Once people move over to Threads, defederate.

[–] Pelicanen@sopuli.xyz 12 points 10 months ago

From a more technical standpoint, I believe the idea is more like:

Embrace: Adhere to the fediverse standards to make Threads compatible and be a part of the overall userbase.
Extend: Add more functionality to the standard so that thread users get functionality that other fediverse users do not. This is where they would make it difficult for open-source devs to try and implement the same features in their software.
Extinguish: Finally, when enough of the userbase has been siphoned to their proprietary platform, cease compatibility with the fediverse and leave the old standard to die.

So basically the same thing you said. We can sort of see this with Google trying to make websites only be compatible with Chrome.