Nah this is not how moderation works on the fediverse. If you defederate from Nazi instances, Nazis have an incentive to go to those instances instead of yours - namely because they can't interact with Nazi content. They can still harass your users of course, but they can't build a platform and get banned quickly. So on the Fediverse you end up with a lot of Nazis on only a few servers, and everyone just bans those servers. Same goes for pedos, TERFs, etc.

This makes it a LOT easier as an instance admin to moderate content and keep users safe. As a Masto admin, I only get about 10 reports a week because I block about 200-300 servers. It also incentivizes me and my other fellow admins to block that kind of content, because if we don't, Nazis will come to our servers and we risk being defederated from.

It's unfortunate but there are a ton of shitbag people out there whose method of using the Internet is to be as shitty as they can be. Whether it's fascism, abuse, sexism, racism, harassment, or just being the kind of person nobody wants to be around, these are real-life humans who've always been around and volunteer moderators/admins have always had to deal with. It's as old as Usenet and if you've ever done in-person community management you know that it's just a feature of our society in general. (People are just a little more wary of being yelled at and punched in person though.)