I’ve been conflicted about this. For example beehaw has a larger technology community but I’m a fan of lemmy.world so I try to post interesting content there to help the site.
Beehaw might not be the best example since it’s defederated but you get the idea
I think instances will eventually develop into hosts for specific topics, but that’s not a bad thing. You can still startup a new community on any instance. I think smaller communities will be spread over all instances.
This is not the worst idea I have heard. I think it would be really cool if people could get local instances going for their cities. Then have the communities be based on topics relating to said city.