Definitely this. I use PostgreSQL (which Lemmy uses on the backend) for an enterprise-grade system that has anywhere from 700-1k users at any given point in time, and it also takes in several million messages from external systems throughout the day. PostgreSQL is excellent at caching data in memory. I've got the code for that system up in another window while I write this.

At this point in time, it doesn't look like Lemmy is using any form of an L2 cache like Redis or Memched. The only single point of failure (that's not horizontally scalable) looks like the pic-rs server that Lemmy is using for image hosting. If anything, that could easily be swapped over to use something S3 compatible and easily hosted using something like Minio locally, or even directly off of B2 or Linode cloud storage (doesn't charge for requests).