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.
I don't understand the first one, why would we want that? Wouldn't it be enough to make it possible to move accounts similar to how mastodon does it (but including your local content)?
My bigger problem is that if a instance goes down then the community is gone. I like how Matrix has solved it that you can have aliases and the content gets replicated on other servers, etc. Then even if people defederate then you still have your old copy and people can keep using it.
The need for decentralised identities stems from the same problem you are describing in your second paragraph. A decentralised identity would imply that your content will also stay if the instance goes down. I don't really know however if there is a feasible way to implement this. An easier solution to me seems to be to enable account backups that can be used to recreate your account on a different instance.