Default instance blocks should largely replace defederation
Since what content users might want to see is quite unlikely to match which servers the admins tolerate, choosing instance on the Fediverse can be quite complicated, which is inconvenient and off-putting for new users.
For this reason, and simply that the Fediverse is stronger united, I believe defederation should ideally be reserved for illegal content and extreme cases. If Fediverse platforms would allow instances to simply block the rest for users by default, the user experience would be the same, unless they decide otherwise.
This would likely lead to a lot of content only cached for the 1% of users which change that default which would be quite inefficient for the instance. Not to mention that most admins and mods would likely not see that content so they can not judge the legality of that content (or other reasons to defederate instead).