Basically, volunteer code commits, volunteer admins, and donations for hosting costs.

Fosstodon is a pretty great example. It’s a fairly large mastodon instance which makes enough in donation revenue to pass some on to other open source projects. It’s not heaps ($600 in 2021), but I think it demonstrates that donations are a viable funding model. If things got tight I expect the community would meet the challenge.

It’s not like you need to build a custom data centre - it’s just renting a server, maybe even a VPS.

That said, of course the admins and mods are volunteers. I’d like to imagine that one day a few lemmy instances could charge a subscription fee for a premium, well managed experience.

Loads of people are spinning up their own instances for their own use. Or did you mean creating an instance for the community to use?