That works so long as:
- Small instances can still participate and engage. "Personal Mastodon server" might very much go the way of "personal email server", in a world of majors (Gmail, Yahoo, Outlook.com, etc.)
- Instances aren't acquired. One of the insidious aspects of capitalism is that firms can buy other firms. Yes, it's possible for a competitor to emerge, but a large established giant can buy out that competitor. Or take other actions, e.g., lock out any entity which supplies or interacts with that competitor. See former "Facebook killer" Ello.co (post-acquisition its new owners are exceedingly opaque and all the B Corp language has disappeared), or Mastodon instance Mastodon.cloud, acquired from its original owner by a Japanese concern.
- Management doesn't otherwise change.
- The operators don't simply diasappear (Joindiaspora.com, mastodon.cafe), or die (pluspora.com).
I AM a fan of Diaspora* and Mastodon. But I'm not blind to their actual and theoretical failings.