Is there a way that users could cohost an instance? If there isn’t, I think that would be a great feature to implement. Having a situation where instances slow down or even occasionally disconnect will be hard on any community. I feel like it could eventually cause people to prefer using instances owned by large and well funded groups instead of passionate users.
I think storing the DB in multiple places is the most important part of this. There could even be different levels of cohosting. You would ideally always have at least two servers hosting the full DB going all the way back in time. Those would be the most important to implement just to have an always available service. Then you could have people that might not have enough resources to hold everything just host all of the most recent and high-demand data. Some advanced server architecture will for sure be needed if this model is going to succeed. It just isn’t possible to do everything on a single server. As far as processing load from running the server, I can’t imagine that will be much of a problem compared to actually storing the data. I am sure a lot of this is all problems that have already been solved and old solutions could be used. Maybe something similar to the torrenting system, with just a few controller servers.