Technically you are correct, the "best" kind of correct. Practically people wont self host just as they dont self host email servers. Practically a few big ones will win, just like with email.
Practically, the big ones blocking or muting other instances will have a lot of power to incentivize joining the big instances so the big instances gain even more power and others are somewhat cut off from useful social interactions
There are multiple artificial and unnecessaey problems