I think where that falls down is if a big community is in X instance, the instance admins have control over that instance

Doesn't matter what instance you switch to if the communities you participate in are under that instance's control

Not saying that's a huge problem yet but it could turn into one and then we get powermods all over again

You're right of course, but it's still something that the fediverse is trying to figure out.

They do. See https://lemmygrad.ml and see how almost every post has some downvotes. IMO this does make the posting culture there better.