I think the way federation currently works spells doom for the fediverse, should any service of it get major traction. Currently, if you subscribe to a community on Lemmy or follow a user on Mastodon, your instance will pull the content of that instance/user and make it available for all to see and interact with. What seems like a good idea to spread content however is becomming the achilles heel of the fediverse: The admins of Lemmy/Mastodon instances are liable in many juristictions for the content their servers are distributing. This means in practice that many Lemmy/Mastodon instances block NSFW content for example, as the admins, understandably so, are either unwilling or incapable of making sure they are not running afoul of any laws.
As such, I think that the fediverse needs to offer a way for users to follow content from other instances without having that content be stored, let alone shared by their home instances.
A question I have at this point is where this criticism is best levied against. Is it the job of Lemmy/Mastodon to provide such a form of federation, or does the ActivityPub protocol needs to be ammended?
What is even the point you are trying to make? The issue I see with federation as it stands now is very simple: With the current implementation of federation, where a server loads, stores and displays content from federated instances, there is the risk of loading, storing and displaying content that you, as the instance owner, per your country's laws, are not allowed to load, store and display. The current implementation makes you, as the instance owner. liable for content that is uploaded to federated servers. That is the issue. Federation, in my opinion, needs to be changed in order to not have instance owners run the risk of being liable for content from other instances when federating! I don't even know how your wall of text even adresses this issue.
And again, I point out to you that the Fediverse is not what you're used to whereby an owner can just throw money at something and forget about it until it needs more money. They need to be active and hands-on. It's their responsibility to ensure that they're not federating with bad actors. I'm unsure why you're struggling with that concept. It's a community, not a product.