Yep, entire instance. Don’t worry about that though, the difference between Lemmy and the real world, is that anyone, can make an account anywhere, so the people that actually want to see your instance, are not going to stay in an instance that defederates you.
Each single instance, has its own defederation list, basically a block list. Defederation, is only for the single instance that decides to block yours, meanwhile literally everyone else except that instance interacts with you normally.
On top of that, Defederation is only one way, which means you can still see their content! Your interactions are just hidden from their users. Those users, are users that (under normal circumstances) know about the defederation, and choose to remain in that instance. On top of that, they also choose not to make a second account in yours, for example.
(Personally, when I wanted to see an instance that mine had defederated from, I just made a second account in that instance. Lemmy clients make having multiple accounts, and switching between them, really, really easy).
People have the freedom, and the ability, to choose who they want to interact with, here. Enjoy it, find your people.
I honestly really wish you luck, and hope you create a part of Lemmy, that is missing right now.
I like meme-dumps, I use discord for that explicit purpose (meme-dump servers). I just don’t want the good community driven culture of Lemmy, to be sacrificed for that.
Help Lemmy have both.
(For the record, I really respect the honesty that you’re facing this whole issue with. I really do wish you the best, and hope you succeed, if you try.)