Why 500 people? Well, Dunbar's number of 150 is too small. 500 is the average number of people in someone's extended circle. Your "tribe".
Keeping instances down to 500 and then federating with like-minded communities avoids many problems of scale, complexity and resource use for each group. Makes it manageable and affordable - and sociable.
Under 500 means little local anonymity and any bad actors are quickly recognised and identified in the community. Plus no ads, spying or nudging.
Free Gaff. No Spies, no ads, no bother.