I really keep coming back to this sentence and still continue to not see the downside. Why is it a problem if an instance walls itself off from the Fediverse? What right do you have to force an instance to do literally anything? This idea that people think you should be forced to engage or interact with content they don't want to see is ... disturbing. Free speech gives you the right to say what you want but it doesn't give you the right to force people to listen to you.
I really want to give the benefit of the doubt but your protests seem entirely based around this idea that you have the right to force people to interact with you. That aspect of Twitter is entirely what enabled Twitter Mobs to mete out life destroying "justice" over the smallest of infractions.
Your complaints are features. People are fleeing to group chats for a reason.
As for the problem of your data being deleted if you’re concerned with that export your data regularly or run your own instance. Anyways, while it’d be nice to take a stab at that problem, it’s no worse than Twitter banning you.
This also leads to some pretty insidious siloing since (at least with Mastadon) you can have instances block themselves off from other instances or instances at large, which seems pretty unhealthy.
Not to mention, people don't typically want to pay for these services, or pay to host them, they want to access them for free. On top of that, with something like Twitter, the desire is to be visible to all, rather than just a few. Most people use Twitter to interact with 'the world', not just a local part of it.