Federation as they are right now are purely military alliances, but I hope this will change one day. I would love to see them only begin as simple military alliances and grow into interstellar organizations that affect more and more aspects of their members as the game progresses. For example, an ability to enact bans on certain policies (like a ban on chattel slavery or some types of purging) after a vote or even force some policies, like forced full citizenship of member species of that federation. A possibility to change the way the leader of a federation is determined from a rotation to an election with or without term limit. Federation can also get a set of laws, that will give both bonuses and maluses to balance them, that will represent a growing economical and political integration. Also a long and difficult path to turn a federation into a unified state can make the game more fun for pacifist empires, who prefer peaceful expansion and miss the old HRE of EU.