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I guess another problem is, larger instances are more likely to be reliably up, if you randomly signed people up to a smaller instance running in someone's bedroom thant they switch off at night then that user's experience is going to be terrible, but if you combat this by only having large instances in that pool then the large instances get larger and smaller instances will essentially freeze at their current size because the main way of signing up would become this portal that assigns you to instances rather than specifically joining an instance. It might encourage the fediverse to become considerably less federated and a lot more centralised.
There is going to be an equilibrium between the number of users and the number of instances. At the moment, with 22 instances with more than 300 monthly active users, we are doing okay.