The established social media sites have lawyers on retainer and will appeal every single case up to the Supreme Court if necessary, and as slowly as they like, just to slow roll those submitting civil suits.

Opening up user-submitted content sites to civil damages would ensure that the largest social networks are the only ones that can afford to fight these cases in court. Smaller sites would become self-censored, even if they weren’t likely to be a target of a civil suit. This would lead to a further entrenchment of the largest social media sites, as they would go to bat for their users at least some of the time. They have to be seen to support their users, or else they would just find an alternative host that isn’t subject to the jurisdiction of the civil suits.

This whole idea seems like a nonstarter, impossible to implement, and with a laundry list of unintended consequences and is counterproductive to your stated goals of reduced propaganda. Instead of being primarily on centralized social media, fake news would be relegated to smaller fringe sites where it can’t be monitored as effectively as on the larger sites, further contributing to the echo chambers you argue against. Your intentions also seem antithetical to free speech between willing participants freely associating.

I think you just jumbled up a lot of counter-arguments here, some of which are interesting and others purely speculative. But let's start where you wound up: The speculation that it's "dangerous" to push fake news to smaller fringe sites hasn't been proven. I've seen a lot of damage arise as a result of the mainstreaming of conspiracy theories from fringe sites onto major sites. I don't see any evidence to support the idea that if the crazy grifters peddling those theories get shunted back to smaller sites, a significant portion of their audience will follow. The history of Facebook has been a pattern of people who have no idea how to find information being fed bad information. Most of those people probably won't find the fringe sites. They weren't there before. Their attention span is short. They're only dangerous as a herd.

The original argument against pushing extremists onto fringe sites was that the fringe sites were dark to law enforcement. I also don't buy that argument. It's a weak anti-encryption argument, and I also don't believe they're anywhere near as dark as LEOs claim. There might be some chatter that existed in the clear, but no one is currently plotting terrorist attacks out in the open on Facebook who will suddenly switch to Telegram if Facebook becomes party to civil suits.

Working back to your previous argument, the idea that the legal juggernauts of the big social networks will protect them while smaller sites self-censor is directly contradictory to what you say about fake news migrating to fringe sites. There's certainly less financial burden on a small site with less traffic to regulate what's posted, and as it stands, small sites do have to regulate what's posted, so it wouldn't be much more difficult. The only people who have broad exemptions over their liability for what's posted, currently, are the big social media sites. So let them spend that good money on their lawyers.

It’s not clear that smaller sites would have fewer lawsuits if the civil suits were to proceed, as they would be flooded with new users, and with new lawsuits, as soon as the large sites became hostile to them. There are already web3 social media sites that require login with a crypto wallet instead of a traditional user account. It wouldn’t be too difficult to create a site that would be immune to such lawsuits even on a small scale, so I’m not sure why you think that adding more lawyer paydays and violations of the right to freedom of speech and freedom to assemble are the answer. If the site doesn’t want to censor first amendment protected speech on their platform, but the government demands it, that’s a first amendment violation.