So, I’m new here, but I’m still struggling to see the advantage of smaller and more focused instances.

One benefit of focused instances is that we can sort of insulate ourselves from de-federation conflicts amongst the larger, user-focused instances. I'm not sure if you we around for the beehaw.org defederation from lemmy.world and sh.itjust.works but those were 3/4 of the biggest instances and those users can no longer interact. Users from lemmy.world were basically blocked from all new content on the communities they were subscribed to on beehaw.org and vice versa.

I host a sports-focused instance fanaticus.social where all we talk about is sports. It's a non-controversial topic (most of the time) and because we're focused on that one topic, users from all the instances like beehaw, lemmy.world, sh.itjust.works, can still interact with and create content for sports without worrying about losing access to the communities they're a part of. That's the major advantage as far as I see it.

I don't care about user registration counts because most of our content comes from users on general instances. In the future we will probably disable registration altogether. I have only left it open for now to reduce the friction for new fediverse users if they happen to find our instance first and want to make fanaticus their home instance.