Vlad I'm not an engineer so I don't know the level of performance impact an increased limit can have but the adjusting of websites you can make on Kagi is arguably one of it's major selling points on why someone would want to pay for Kagi in the first place. To limit even to 500 would negate such a large benefit of using Kagi in the first place. If there was one feature that should be splurged on and have a performance impact on, it would be ranking. Limits would still be needed but like handsel said, most of the sites on the internet is junk, so one could easily block 200 bad sites before they even get the chance to consider which ones should be boosted.
Millionshort.com gets rid of the top 1 million most popular domains from the search results. Since most SEO junk is competing to be on the first page/most popular domains, being able to still block specific domains after the top 1 million have been automatically pre-blocked severely reduces the amount of individual/personalized blocking the individual end user needs to do. A feature like this combined with an increased adjustment limit would help solve many of the concerns here.