Interest is waning because there is no work being done on federation. Federation is the defining feature of this project, and no tangible progress has been made.

There was massive interest in the project when it first picked up some steam and for a while after. I think that most people are viewing it as a dead project. There are multiple FOSS link aggregator servers out there, and while Lemmy is i believe technically superior to them all, the interest is in federation, not another alternative link aggregator. I personally think that all feature requests need to be put on the backburner until there is at least minimal federated functionality. Of course I am not the maintainer or project manager so that is not up to me, it is just my opinion.

Also bear in mind, this instance is not for production, it is for testing. So that will play a role in people being skittish of signing up here.