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I think the only way it could work would be if everyone had their own self-hosted site, otherwise the admin/owner would have power over the users. With everyone using their own individual instance, they can block content they don't want to see but no one has any power over others.
It would be too complicated for normal people to set up and use, and most wouldn't want to pay for hosting when they can use Facebook for "free".
Unless they get something they won't find on facebook -> freedom.
I think your idea about everybody basically becoming their own instance is not as bad as it sounds. If social media was peer to peer, using bittorrent technology somehow the hosting issue might somehow be resolved.
That would still leave open the issue of self-governance: how would you genuinely determine the community wishes on any given subject? some may sabotage, others may use bots, other again may try to be disruptive and others may abuse other users or the community.
Most people don't want freedom. They want rules and mods to enforce them so they don't see things that they find offensive.
If everything is self-hosted, why would community wishes matter? Just block the people that disagree with you and do what you want. If you're getting abused, block the abusers. If people are disruptive, ignore them. That's pretty much how the internet used to work back when we were using forums and personal sites instead of modern social media.