You could keep the general structure and functioning while improving privacy.
For example, by obfuscating post history, anonymous posting or assigning a user pseudonym per instance/community, auto-deleting old posts/comments. All optional features of course. Let instances/communites decide which of these features they want.
Keep the structure of Lemmy with it's Reddit-like-ness and instances, but give users, instances and communities more control over data privacy.
Sure it's harder to implement, you need some minimal-knowledge reputation system, but there is nothing fundamental preventing that from being possible.
The nice thing about federation is that one instance/community can stay the same data-leaking privacy mess, if they so prefer. While others could operate analogous to 4-chan (or anything in between).