I'm running mine on a ~$33/year VPS at GreenCloudVPS. It's a small instance (just me) but it federates with all the major instances which means it still does a bunch of work (since it has to handle incoming posts and comments from federated servers). It's a decently powerful VPS with an AMD EPYC Milan CPU, 10GB RAM, and 100GB NVMe storage.

For a medium-sized instance, I imagine you could get pretty far with a single <$100/month dedicated server from Hetzner or a similar provider.

I am under the impression it's dedicated hardware not a VPS, but it's leased from Hetzner they don't maintain the hardware themselves.