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I'm definitely seeing the benefits of belonging to a smaller Lemmy instance today.
(programming.dev)
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I was thinking if an instance owner cannot afford to keep upgrading servers, it could close its doors to new registrations. This will create a need for more instances and users will be more evenly distributed.
But it's my understanding that resource usage will keep increasing even if you keep the number of users constant on a server (as more content is posted in the communities that users are subscribed to, and that content needs to be synced and stored).
That's adding storage, which is comparatively cheap.
For more simultaneous users, you need more CPU/RAM. That's where the monthly cost shoots up fast.