The problem with tiny instances is reliability and trust.
If you lose the motivation to run it tomorrow it’s gone. If you run out of money? Gone. If you’re the only admin and you die? Gone.
In addition to that you can read everything I do on your instance. Like all my “private” messages.
If an instance admin is scummy they could even modify the Lemmy code running and save away all passwords and emails in plaintext. Not an issue for me as I use a custom email and random passwords for every service, but it can fuck over random people.
So professional bigger instances do have their benefits too.