Memorial to "rif is fun for Reddit" Android app, aka "reddit is fun", shut down after June 30, 2023
Second option is difficult because there are too many instances. It is difficult to make good use of the funds as the popular instances will eventually enjoy too much profit whilst the smaller instances will be forced to shutdown due to lack of funds. This will lessen the decentralisation overtime.
The solution is a central service, something like Lemmy Fund Management or something, which regulates the funds accordingly. The managers will be selected by voting system (democracy).
Unsure how distributed federated services prevents the reddit downfall, aside from corporate greed. Which can also be solved through legally binding agreements/foundation-controlled companies. Among many other solutions.
It's all a tradeoff. To tradeoff corporate greed you now have community fragmentation and fragility risks as any instance can be taken down whenever, and any unhappy user that created communities can solely kill them off (As stated by some users threatening to do so in another thread)
#2 sounds good to say, but barely works in practice when you're talking about infrastructure costs in the tens of millions of $ per year for something at scale...
Essentially saying nice things that don't effectively translate into reality doesn't solve problems. It just perpetuates a lack of critical thinking.