Giving social media platforms access to my contacts? Ew. Never. However for those that want it it might be a good idea, except what if I don't want whoever has put me in their contacts to find me that way?

Building a signup wizard to use that information to select a instance would seem to be the best approach.

That's actually not a bad idea. I'm not on board with mining contacts, but I think there's a simple, transparent way to do this that can actually be fun: a personality quiz. Sure, if someone knows what instance to join already, they can override this. But if they don't, they get like five questions, and then they are matched to an instance.

The contacts would let you know what instance most of your friends are located (e.g. look up email addresses).

I don't think that's possible without creating a privacy nightmare, at least not with an identifier like the email address.

To be honest, as an instance owner I would not want to even have that data touch my instance - that would be a nightmare waiting to happen whether some instance operator does so with or without malice intent (such as a server compromise).