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Seems reasonable. It's good to figure these things out now btw, as courts will adopt the "common definition" if the law doesn't explicitly define things (including referencing dictionaries for the meanings of words).
You don't even need to buy a domain necessarily, just have a place to install the software and use one of the free services.
I run my own self-hosted single-user pyfedi instance, and I more-or-less do so for free (I mean I pay for internet and I bought the old laptop that I'm running pyfedi on ages ago, but that's it).
After looking at a lot of different options, I decided to go with srv dot us since srv dot us guarantees you a permanent domain name without having to pay (albeit you can't pick the name). srv dot us actually doesn't require any signup either - you just follow the instructions, connect, and go - and they only keep records like your ip address for one day, so if you stop using it for longer then poof you're suddenly that much harder to trace.
ngrok dot com also offers a free domain name (but you can't pick - if you want to choose your own then you have to pay). You sign up with your email and all that though (you can also sign up using your github account). I almost went with this (the author of pyfedi, [email protected] , mentions (recommends?) using ngrok for this purpose) but at the time I had some other issues and misdiagnosed it as ngrok blocking federation with their silly popup (see https://stackoverflow.com/questions/73017353/how-to-bypass-ngrok-browser-warning for more details)
You can learn more about pyfedi by visiting the flagship instance at piefed.social
Nope, nothing like that. Verification is done mostly just by making sure you own or otherwise legitimately have access to the domain that you are using (specifically that you have SSL certs that are certified for the given domain for use in HTTPS if you wanna get a little bit technical).
So fly-by-night instances it is! It wouldn't necessarily work for large instances with many users though - pretty much all of these do buy their own domain, for which you have to provide your legal name and address and such (even if it's not public thanks to domain privacy, it would be available to law enforcement)
And federation does not play nice with someone's domain name changing. Meanwhile if one is caught registering for a domain with a fake name etc then the domain registrar is entitled to cancel the ownership of that domain and take it back.
That said, one might luck out and find a good domain with a registrar that's in a jurisdiction that is particularly unfriendly to Texas's ability to enforce SCOPE.
Thought I could enhance my previous answers by adding a little more detail here.
Wow! Thank you for such a detailed answer. Even without some weird law, it's good information to have, and with a little elbow grease, it sounds completely doable. And if it keeps people from getting in trouble / protects privacy, I'm all for it!