I think it’s alright. It removes the possibility for name squatting and monopolizing on a community name, any instance can make their own version if they don’t like the moderation. But I think some communities will tend to be more active over time than others. You could see a community about music on lemmy, but maybe the most active community for backpacking happens to be on another instance. As long as users are spread out, it will work this way.

edit: I think a good example is how communist/marxist communities are more active on lemmygrad. It helps if an instance is tailored to a particular topic, like mander.xyz is for biology, collapse.cat is for climate change, etc