Not every room or space will be hosted by someone self-hosting their server. I find it kind of appalling that this would be the solution. It’s certainly not what I’ve heard from people working on projects around moderation.

This is somewhat the goal, but without the hyperbole. Homeservers will be hosted by individuals or orgs, but will contain many rooms and spaces each. In 2020 there were over 20,000 homeservers. That number has without a doubt grown exponentially. The concept is the same with Mastodon. If you are worried about moderation on the matrix.org homeserver there are many lists of public homeservers across the web. Many people research homeservers to see if they are a good fit for them just as they do Mastodon instances.

This blog post gives a good idea of where matrix is heading. Notice their mission of decentralization.

Since agglomeration around a single instance is against the goals of Matrix and its Foundation, users need to have a way out and incentives to move.

We are committed both to making Matrix more accessible, and to doing the work to decenter the Matrix.org homeserver.

Matrix.org is meant to be an entry point, not a stopping point. As to your concern regarding built-in tools, matrix is just a spec, an open source federated communication protocol based on HTTP. The community builds tools. Matrix is not discord. In fact it is in opposition to the discord philosophy of centralization, data mining, advertising, and AI training.