I don't think that's how it works. Based on how federetion/Fediverse/ActivityPup works in general and what the devs have said so far (because I'm honestly been too lazy to check the code of Lemmy myself).

While accounts on lemmy.ml would be wiped, content would still exist trough other servers that federated with it (ever noticed how those servers have their own URL to stuff they federated with under their domain with the community after the /?). If I react to something on lemmy.ml, it doesn't even cost lemmy.ml much bandwidth. It costs feddit.nl (my home instance) bandwidth.

That's also the point if decentralisation. Not only if a instance becomes shit can you go to another and continue interacting, also if an instance dissapears it's content is still available. It stops anyone from having a monopoly on the data, and with no one in ultimate power no one can abuse that power. Even the code is open source, so if the devs add stupid shit, hosters of instances can just not use that code or even edit stuff as they like.

Otherwise, your instance matter for rules and juristriction. Your privacy, and what laws and regulations are covering your Lemmy account, are all determend by thát more than Lemmy as a whole. Technically, Lemmy is just hosting software like NextCloud. What else is running on that server, who owns it, where does it stand physically, and how it's managed are what matters. And if you trust no one, you can host it yourself.

Also, I think I read somewhere the devs where working on account migration. But don't pin me on that.