I'm not sure thats true. At the time of their acquisitions Instagram had 13 employees and WhatsApp had 55. Both of those are extremely small when compared to the size of Facebook. And given the size of the acquisition price tags i'd wager facebook felt like both were existential threats.
An open source, distributed social network doesn't need many servers and can be built by volunteers, so you don't need VC funding or a monetization model. Just get everyone to host and share their content and the content of their peers.
It may be like Linux and never be fully mass market, but that's totally fine by me, I share different content with my geekier friends than with my non-technical family anyway.
That doesn't like a problem that is hard to solve. Any website that will have the growth of facebook can invent solutions along the way.
> polishing up the UX to what the masses have come to expect
I rarely visit facebook but i don't think it's particularly good UX. Tiny Links all over the place, you can barely follow a conversation without getting distracted.
The bigger problem is that making something like Facebook requires a lot of resources. You can't achieve that scale, feature-set and UX quality without a lot of engineering manpower. Users expect these things for free, so there will always be some monetization strategy a couple steps ahead of the current cultural standard for ethics.
Startups with high-minded ideals can certainly start strong, but they will inevitably sputter since capitalist incentives overwhelm at scale. I mean just look at Google, it could be the poster-child of disappointed expectations, having come out of academia with their "don't be evil" slogan, but inevitably all large companies come under the thrall of a Wall Street mentality sooner or later. This goes triple if there is no monetization strategy and they are relying on VC funding.
I'd love to see some of these decentralized or other high-minded social media efforts succeed, but even if they overcome the fundamental technical challenges, polishing up the UX to what the masses have come to expect will require a ton of resources that will require funding that seems incredibly difficult to obtain in the current economic culture.