Sorry I click-baited you with the title, I hope you'll find it justified.
It's important to discuss the unavoidable downsides to complex (technical) systems, since there is a relatively low percentage of people who have capacity to understand the details of how things actually work.
It's particularly bad when dealing with money as money attracts the worst parasites. This is why, since the advent of Bitcoin, the carousel of buzzwords has equated it in the minds of many as the center of the scam universe.
Federations are the latest arrow in the scammers quiver.
So, what exactly is a scammer trying to achieve exactly when they call something Federated?
A fed scammer wants to distinguish their product/service from something non-federated. When they tell you their thing is federated, they are implying is that
There's multiple parties involved that would have to collude, so you're not trusting us directly, there's a higher threshold to rug you
This is dishonest, because in all cases with federated things, you are still trusting someone (usually them) directly, 1:1.
Simplified Example:
You generate an address to receive a payment to your federated shitcoin wallet, but the wallet publisher serves an invoice not from the federation.
More Complex Example:
An honest but naive wallet uses an external Federation for bootstrapping, but the federations API server responds with an address not of the federation.
Because you didn't query a server from each federation member to ensure they all agree it's a legit address, you have no idea where the address/invoice actually comes from.
Yet More Complex Example:
Your wallet fetches a legitimate federation address, but when you later spend, the gateway/swap service sends the bitcoin somewhere else- no fractional reserve to tip off the guardian.
Steel-Man
Obviously not everyone advocating or working on federated stuff is a bad actor. There are well-meaning and virtuous bitcoiners working on this that care very much about users privacy, and want to create on-ramps for people who can't yet afford a transactable amount of Bitcoin.
You see federated stuff everywhere because it's proponents want you to know how virtuous they are. If you disagree, it must only be because you hate privacy, innovation, and poor people.
There's is a case to be made that Federatoors aren't scamming you the user, but scamming the regulator, by obfuscating the custodians with technobabble.
Counter
It's the virtuous non-communists that brought the Bolsheviks to power. There is an analog here, useful idiots are normalizing bad technology. To make matters worse, there's a disproportionate amount of funding for these projects from undisclosed interests, proxied through NGO's and Front Work, and it's buying up any developer with their hand out.
Privacy and on-ramps are important, but Federations are fit for larger custodians relative to their Uncle Jim counter-parts. The bigger the custodians, the more liability to privacy is created by consolidating flows into surveillance choke-points. Federations are honeypots.
I think most all Bitcoiners agree that large custodians are bad, and smalle custodians have less than 0 to gain from federation software. Uncle Jim is the smallest custodian next to the individual, there's no benefit to him by federating since as illustrated above it's all a LARP to begin with. A billion Uncle Jim's are how we keep the network decentralized and private, and there's a lot at stake from the financial and surveillance state in preventing that.
Since builders of Federated solutions are technical and capable of understanding these workings, we must conclude that they are ashamed of their products and have to lie about the trust trade-offs vs. non-federated alternatives. Even if they are scamming the regulator, which is commendable at face value, they're actually helping the regulator by standing in the way of real innovation and decentralization that will permanently disempower the regulator.
In summary, Federation narratives serve one purpose, to obfuscate whom you are trusting... so why the hell would you trust one?