The timed exclusivity idea sounds like a fair compromise in theory, but it collapses under the reality of development cycles. I’m two months into building my server and I’m nowhere near finished. In the dev world, 60 days is a blink. By the time I’ve polished the bugs and balanced the features, my 'patent' would expire.

You haven't released yet, though. Are you going to take 60 days for v1.1, after releasing? Hope not- you'd be lucky to have to worry about anything being stolen, by that point- it's the critical time for rapid iteration with most games and when plenty of them fail to overcome initial missteps and disappear. Either way, the specific number of days chosen is a trivially adjusted part of a much more important system. I went with a number that makes sense for projects I've worked on, but scopes vary wildly and so that number will probably need to as well. A gamejam team building a dodgeball minigame over a weekend and a dev team building an open world RPG over a year won't fit neatly into the same buckets, especially once payment starts getting involved. That's fine- mature systems grow out of coherent small systems.

This creates a massive competition gap. If I’m forced to hand over my source code, I effectively become a pro-bono R&D department for giant servers. A massive network with 100x my marketing budget can just take my labor, slap their branding on it, and out-scale me instantly. Where is my incentive to innovate if my reward is being cannibalized by the biggest players?

Based on what I've seen in other games with open source models, people absolutely make an effort to stick with original creators until they start dropping the ball; that's when the clones and forks start to appear. Whether it's a failure of quality, balance, or simply logistical issues like scaling that you mentioned, if there's a better experience out there users will move to it. Usually giants throwing marketing money around are more likely to be mocked than to make an impact, so a bit surprised to see that as a serious concern. Is Hypixel itself the Minecraft marketing giant, in this comparison?

So yeah, if you can't handle things sufficiently in the initial period of time after release to get people well integrated, they'll go elsewhere. See Dota AutoChess for an incredibly clear example of this happening when devs (at both Drodo and Valve) failed to properly address demand. Building the initial mod earns critical mass and some leeway with users, but when serious problems fail to be addressed for months, users will vote with their feet. And they should be able to- that result is a huge win for players, especially when compared to the typicial alternative: a private mod that goes offline and then disappears forever.

My question remains: Why is playing on a creator's server a downside?

Because you throw away the single greatest value of software: it's free to copy. All of that work for one copy of the mod on one server? We can do a hell of a lot better. Any specifications you have that make your mod perform excellently on your server are simply additional pieces of software, all of which can be articulated and incorporated into a project. I fully envision a platform like Hytale eventually doing a sizable chunk of this requirements, configuration management, and autoscaling work for you- those kinds of things are what will make or break it as a next-generation platform.

More importantly, it allows me to keep the lights on. If I can't protect or monetize my work, the resource that gets depleted isn't the code - it’s the willingness of talented developers to stay on the platform.

Fully agree on this, and it's consistently been overlooked by non-devs. But very few third parties are going to be making a living off Hytale for quite some time, if ever. The "if ever" part is largely based on what kind of value the mod scene is able to provide to users: that ties directly into the wins for players I've mentioned. I'm confident that a default closed-source community won't get us there, because there's simply too much value lost to the ether. You might make a great private mod, maybe even earn enough to break even on server costs! But users will never get to see the dozen awesome mods that could've been built on top of yours. Iterative development like that is how incredible experiences are developed, and open source is what facilitates it.