Nooooot exactly.

See the way federation works is that each community on each instance has a list of other instances that has at least one subscriber on it. Every time someone does something on that community, such as commenting/voting/posting, it sends that information out to every instance on its list.

So say there's three instances (A, B, and C).

A has 1000 users.

B has 500

C has 10,000

Let's say they're all subscribed to some particular community on instance B.

A user on Instance A comments on a post. Instance A sends this comment to Instance B. Instance B tells Instance C about it so everybody is synced up (and presumably, tells A just to confirm they've received it).

So one action means instance B has to send out 1 or 2 messages to other servers, and in just those two messages was able to serve 11k users (plus it's own 500)

Now let's say all 11,500 users ran their own instance, and this community was on one of them. Again, it's a super popular community and everyone else is subscribed. Call it instance X.

Now, someone comments on a post on this community. Instance X now has to send a message to 11,499 instances. Every single action on this hypothetical network will cause several thousand messages to fly between them. Not efficient to say the least.