I think moderation can be solved by giving communities more freedom to merge or move instances. The “market” will correct overreaches in moderation on a free platform such as the fediverse. If the moderators on one community are overzealous or poorly moderate their community, then users will move to the same community on another instance. If instance admins are the same, the community can move to another instance.
Being able to migrate your community to a new instance without losing old content or subscribers would really help moderation stay in check.