[str4d]

A useful way to think about it is that the PDS is a "user agent" - they act on behalf of the user, and with the user's implicit trust. This is much the same way that a user trusts webserver software (and the VPS running it) to correctly serve their website, hold onto the private keys for the site's TLS certificates, use those private keys to correctly set up encrypted connections to the website, etc.

The AT Protocol itself does technically allow for all private key material to be held at all times by the user, but that means the user needs to be interactively involved in any operation that requires making a signature (and online / available whenever such an operation is necessary, which isn't necessarily the same times as when the user is interacting with a particular app like BlueSky running on ATProto). The PDS software that BlueSky have implemented instead requires (IIRC) that the PDS has the private key for at least one of the public signing keys (but there can be multiple signing keys, so the user can also hold onto one locally).