I think that it's foolish to concentrate people and activity there even further, it defeats the point of a federation.

It defeats some of the points of federation, but there are still a lot of reasons why federation is still worth doing even if there's essentially one dominant provider. Not least of which is that sometimes the dominant provider does get displaced over time. We've seen it happen with email a few times, where the dominant provider loses market share to upstarts, one of whom becomes the new dominant provider in some specific use case (enterprise vs consumer, mobile vs desktop vs automation/scripting, differences by nation or language), and where the federation between those still allows the systems to communicate with each other.

Applied to Lemmy/kbin/mbin and other forum-like social link aggregators, I could see LW being dominant in the English-speaking, American side of things, but with robust options outside of English language or communities physically located outside of North America. And we'll all still be able to interact.