Anything illegal posted on a remote server will bring legal trouble to you as a server admin the moment it federates onto your instance. Therefore I completely understand them defederating from instances with a high risk of illegal activity.
What…?
Selective federation is a benefit. It’s by design. It’s helpful in precisely these circumstances. And as it’s open source, the users of the service can use the feature how they want. It’s entirely reasonable that instance admins use the feature as intended to protect against regional legal liability. What you’re doing is like using a canoe, and then complaining that there’s too much water in these here parts.