I can think of plenty of reasons. Lately with the hexbear nonsense, there are tons of seemingly normal sounding communities that you might click on and not realize that you’re being fed propaganda without even knowing it.

Also I saw a community called spoilers yesterday but it was on an instance dedicated to magic the gathering, so I guess the community was dedicated to talking about spoilers from within the game itself. But if all you see is spoilers, it wouldn’t be obvious at all. There are tons of examples of things like this happening when instances are specific. If there’s a community all about sports but it’s hosted on an instance from Australia, that might not be relevant to someone who isn’t from Australia.

More importantly, as with any other feature request, this should be made as an option. If you don’t like it, then don’t enable the option. People that would get benefit from it could choose to enable it. Win/win. I have no idea why anyone would ever argue for optional features to ever not be added. As far as the space restriction goes, it’s already an option to be able to see individual users full instance name, I don’t know why this would take up any more space. It should be exactly the same amount.

Same communities but different instances mean different rules to follow. It's the double edged sword of decentralization. Knowing which instance you're in at a glance will let you know if you can criticize Star Trek Discovery without being banned.

Instances have various moderation styles and audiences.

I like to know what I'm getting myself into.