One important aspect of this system needs to be the ability for communities, not other mods or admins, to have the ability to vote to add/remove moderators of their respective communities. Otherwise, power will concentrate amongst the moderators of popular communities which will undoubtedly lead to abuse, as we have seen on Reddit.
1/ Moderators aren't always aligned with the community (see recent /r/antiwork scandal).
2/ Reddit does not pay moderators for the labor they provide. Moderation is basically a job that takes hours of time and they profit off the backs of that free labor.
This is the Mastodon model! Your instance’s admin can enforce whatever rules she desires, and ban entire remote instances for breaking them.
For instance, if my instance has a rule that “nothing related to feet may be posted on No-Feets Friday”, I might decide to block foot.celebration for being a hotbed of constant footposting regardless of the day. If you disagree with my choice, there’s a ton of other instances out there you could move to, or go get foot.party and start your own. I might block these Friday-Foot-Friendly instances as well; if enough of my users decide they want to talk with people on those instances then I might suddenly find myself with everyone leaving. If sentiments are widely split on the subject of Feet On Friday then we might end up with two groups of instances that largely don’t federate with each other over this matter.
My favorite subs that I keep going back to are very lightly moderated. I have rage quit many subs I used to really enjoy, purely because of absurd and unnecessarily heavy handed moderation. In such subs, mod comments literally outnumber on topic ones, most comments get removed, and most threads get closed. But what you see isn’t the clean result of vigilance, it’s all the artifacts of the mod carnage, like heads on pikes by the road. The subject and content of these subs is the mods.