That happened on reddit all the time, minus the instance part. Remember /r/freefolk?
The “instance part” is absolutely huge. If I wanted to, I could go start a /c/lemmyshitpost on SDF Lemmy [1] with a completely new set of rules [2], particularly a set of rules that possibly would violate Lemmy.world’s TOS or possibly even the law in Lemmy.world’s jurisdiction, but not SDF’s or their jurisdiction’s laws.
It’s not a big deal for the average user until the day you run afoul of the server admins.
[1] As of writing this, SDF does not have a /c/lemmyshitpost.
[2] I’m not interested in doing that lol, this is just a hypothetical. I’m annoyed at this most recent decision but nowhere near ready to leave over it.