Donations, or with a small enough instance a server admin might just pay out of his or her own pocket. Maybe if Lemmy were ever to get much bigger there might be paid or ad-supported instances.

I think a big part of the point of federation is that the costs of hosting servers can be distributed so no one has to spend millions to keep their server running. That way there is less of a need to monetise an instance (and less of an incentive, as if you start doing anti-user stuff, people can just move to a different instance).