When I moved to Lemmy and learned about how federated sites like this work I realized how utterly impossible for something like what’s happening to Reddit to happen. The biggest obstacle to Reddit users migrating right now is the fact that there’s no equivalently sized community to move to.

That would never be the case here. In addition to defederating like you mentioned, users not in the instance in question could easily set up an alternative community, as easy as it would be to open a new sub. Users in the instance in question could easily migrate to another instance. No need to find an alternative platform, no need to make a new account (in most cases), and no need to worry about a new community being active and well established.

While I see downsides to the fediverse, I see some major upsides, especially in the wake of Reddit’s implosion.

Same here. I’m a government worker and I get liberal leave notifications from their Twitter account first.

It’s the lifecycle of social media sites. I knew when I left Digg 13 years ago Reddit would inevitably follow the same fate at some point. The problem we have now is that there are no alternatives of similar size nor established communities to replace the sites that are falling apart. Digg and Reddit were equal and provided an instant replacement of similar size for the exodus. Same with MySpace and Facebook. Now, the users of the big sites don’t really have that haven to jump to and people don’t want to spend the time building a new community. There is no Twitter alternative. Mastodon just doesn’t cut it right now and the fact that actual companies use Twitter as an official mode of communication makes it harder to leave. Reddit is the same way. Every controversy draws users to alternatives, but nothing can match it’s size.