Mutually assured enshittification

Except in this there's really not a lot of benefit when it comes to centralization so it would be better to decentralize to make sure no single instance becomes too big. I'd say world is already a bit too big because 90% of my subscribed feeds would be gone if world no longer federated with Piefed. World has significant sway on our side of the fediverse because smaller instances will probably feel dead (or turn into an echo chamber) if world won't federate with them.

No, it isn't. People will refuse to leave, just as we've seen with FB, Reddit, etc. Lemmy.world has already enshitified from where it started, and from the position of nearly every other instance, yet people like you are still there. That's proof against your argument.