In XMPP, e2e encryption (just like everything else) is an optional extension. So in practice half the clients don’t support e2ee, half support different version of e2ee (can’t talk to each other) and pretty much all e2ee are likely full of holes since there are too many implementations to review.
In Matrix, e2ee is in a library that all clients can use, so while it is not Signal, it provides decent security.
The issue to that is some moderation is mandatory by law, e.g. CP, copyrighted works. So mods still have to have the ability to remove data from the instances server completely, not just hide it. And instances probably also want to be able to have enforced rules on top of that.
I think what could do better is federating on communities level. So if you post or comment to memes community, it can post or comment to version of the community on multiple instances, each with different moderators.