What exactly is the cost of self hosting a Lemmy instance? Understandably you would want a powerful server, but that would be just a single one time purchase.
Where does the rest of the cost come in? Does it require more than a 2 gigabit connection and thus require a data centers 10 gigabit connection?
If I could run an instance on 2 gigabits and spending a 1-3 thousand on a server then I'd be interested in giving it a try.
Depends how many people you are hosting for. But what you describe seems overkill, I think Lemmy.ml just upgraded to a 6 core cpu and 32gb of ram and they have 30k+ members.
I host an instance for myself. I have subscribed to many communities (10-20), and I run it on a 1 CPU + 1 GB RAM DigitalOcean droplet. However, the Lemmy instance was OOM-killed already once, and I expect that I have to upgrade eventually.
For a basic instance running <1k registered users, it seems the lemmy.ml instance survived a while with a quad core and some middling ram on a VPS. Really, connection bandwidth and/or CPU is not the bottleneck with Lemmy since most heavy image/video content continues to be linked externally, it's the database management to keep all comments and posts sorted correctly that takes resources. So you need storage IO and memory more than anything.
Sure if you want to grow as large as lemmy.ml you will probably be needing a "dedicated server" with high expenses. However, I'd bet any old generic office PC, or even a Pi, can run most small instances easily if you have access to a 2-gig symmetrical connection.
I'm hosting a personal instance in my home rack on a VM of 1 CPU / 2GB RAM. My only concern is to see how fast the disk usage grows over time (years?) no idea yet if lemmy cleans up old content or not. I'd imagine not since that defeats the purpose.