Yes: it prevents things like death threats mods have been known to receive on the centralised Lemmy precursor.

In my opinion this runs counter to the idea of federation

The rest of the internet runs counter to the idea of federation, yet Lemmy must work with it.

You mean like lmmy.to?

Like lmmy.to?

They’ve set a separate display name that’s show instead of the name that also appears in the URL.