In the information thread over on beehaw the moderators specifically state that their ideal is a system wherein they can see and interact with other instances content while disallowing outsiders to see and interact with their content. I actually think under a system where users of other instances can apply to be allowed on beehaw this is a pretty significant gain of function for the threadiverse.

Urgh, but that's gross and power-trippy.

Isn't it true though that to create a 'safe space' they have to either moderate intensely or decrease the amount of outside users?

You have to do the former, regardless of if you do the latter.

The issue I have is that it isn't really compatible with the idea of having a big social media network. If they wanted to make a "safe space", well, doing that via Lemmy -- or any federated platform -- wasn't the right choice.

It'd be like trying to make a "safe space" on Reddit. The idea just doesn't make sense. It's too inherently open, too public, for that to be viable.