I can already imagine a few ways that can go wrong. This would be a awesome way to do it though but there are many issues that would have to be addressed for that.

The good thing is you can always run a tiny instance for just yourself and not defederate with anyone if other communities defederate too aggressively.

defederation should be kept to a minimum and saved for big offenders only. I think best option is for lemmy to have an option to hide posts from some instances on a per user basis.

Reporting isn’t good. I do think users should have an ability to block instances for themselves. (you can do that right now if you run your own instance)