If everyone was spread out onto different instances, and communities were based all over the fediverse, the decisions of one instance would be less impactful.
This has its negatives. If someone makes twenty-seven different hate speech communities spread out over twenty-seven instances, it becomes harder to exterminate them like the vermin they are. If they all congregate on one overly-permissive instance, you can defederate them and call it a day. Much easier.
Has to be done manually, though. Better tools will make this a more appealing option in the future, but for now I unironically think more centralization is the better option just to make the moderation job a little easier. Lord knows it's difficult enough.