lemmy.world is run by the same people as mastodon.world and it is already donation funded. They post financial updates on their blog: https://blog.mastodon.world/

they have been funded by grants from NLnet (I think from EU funds?) but I think are transitioning to donation-based.

Just to get it out of the way: there are obviously some issues with lemmy discoverability and quantity of content

But to be blunt: this is not the kind of user lemmy needs right now, he won't be missed. He doesn't want to join a community, he wants to scroll a feed that is pre-curated for him. And to be honest, that is most redditors, for better or for worse, but the core of the site, what gives it most of its value besides just scale, is powerusers and mods who will see: "oh there isn't a formula1 comm yet? I'll make one". Boom. Problem solved. among a userbase of thousands there will be other people who want to talk about F1, but you need at least one person to be engaged enough to create the community and post to it once in a while.

This perspective is fundamentally self-defeating if you want to get an alternative off the ground. It will take off if people get into it, and it won't if they don't

I know the ability to, as a user, block an entire instance has been requested, so it may show up.

Nope, the ability to disable downvotes instance wide was added in v0.6.0 back in 2020 by Dessalines, and received some patches last year in 0.16.3

it's also been the default on hexbear.net for the past several years

the lemmy source code is public

hexbear is currently running an old version of lemmy that doesn't support the v3 API or federation. migration to a more modern lemmy is in progress

And I think the biggest performance boost would be to separate the application and postgresql onto different servers.

I think hexbear.net (an older lemmy fork-ed site) is working on this in conjunction with moving back to a modern lemmy version

Cloudflare does have the ability to spy on traffic though, they hold SSL keys.

A better option for a simple usecase like that is using something from your DNS provider. Depending on who you use they may have a health check service that has no access to user data that can simply ping a URL, and if it fails hard enough, start redirecting traffic to join-lemmy.org

I think Constellix has it, though I'm not necessarily recommending them specifically

No offense but the site has bad UX too. I mean it's gotten better but still

I heard earlier today that beehaw is running on a sub $20/mo VPS and they have a decent user count