Pros: you [sort of] own your Fediverse identity; you can make any changes to your instance you want (if you know how to do it); you’re in control of whom you peer with.
Cons: maintenance burdens (especially if you make any changes); content discovery complexity; possibly slightly less privacy (as you’re the only user of the instance, whatever is visible about it can be directly attributed to your activity). All solvable, of course.
No. That would've been a much worse disaster. It is a good thing that APIs and protocols aren't licensable/copyrightable.