By shifting moderation responsibilities to the individual mods on each subreddit. Reddit employees do very little moderation on their own - mostly reviewing entire subreddits once they get reported enough times - and banning them entirely if they are unsavoury enough. They basically outsourced it to volunteers in exchange for a platform to have your community on(interestingly, Discord works in the exact same way - discord employees only review servers once they get bad enough and ban them, general reports go to server mods and only to them)

Reddit effectively farms out moderation to volunteers. It's a lot like feudalism. Subreddit mods put in the labor of the day to day moderation of the sub in exchange for the ability to wield power over the subreddit. When a subreddit is shirking in it's moderation duties, or otherwise doing something the central power doesn't like the subreddit is deleted.

Reddit has something like over 20,000 unpaid mods that are active daily