Yeah, apparently I was wrong about this (still learning lemmy and fediverse stuff...). Text content of posts and comments are "synced" to your server and stored in your database there. Then future requests for that content are served from your instance. So its not as bad as I thought it was (the network load should be lower since you aren't acting as entirely a proxy, more like a cache), but database bloat will be a huge problem (its already a big problem in other federated things like mastodon and matrix, where every server ends up saving everything they want into their own database).

I'm not sure what happens when the original server goes down, does the federated servers discard that data? Or do we each maintain a forever copy until we want to get rid of it ourselves? There's also some notes I've seen about how servers only incrementally cache federated content (only posts and comments that are viewed by someone are fetched, and new comments may not be fetched until someone wants to see it)... so not everybody has a "pure and full" copy of posts necessarily.

But overall I wonder how all the various sysadmins hosting these lemmy instances will deal with the expotential growth they're going to see, or if smaller instances will start defederating to save on hardware costs (no reason for my tiny instance that only talks about blue shiny rocks to federate with lemmy.world and store all that content)