My solution:
Create a size cap for factions so that a maximum of 500
Edit: Here is a statistic to show how unbalanced N-day has been this year. Three megafactions make up most of the N-day participants. These are the Crabs of the Apocalypse with 14,977 nations, The Potato Alliance with 7,065 nations, and The Catgirl Hivemind with 1,328 nations (however, this faction might not be considered a megafaction considering the scale that they are getting shelled at). The next biggest faction is the Grand Army of the Republic, with 127 participants.
Edit 2: Reppy outlined some of the issues with this suggestion. To help fix this, I propose that factions be linked to regions. A region can link to a maximum of 3 factions, while a faction can be linked to a maximum of 15 regions. In comparison, The Potato Alliance is linked to 28 regions, while CotA is linked to 13 regions.
Edit 3: I have given my opinion on and outlined some other reforms to the N-day system in this post here.
Edit 4: Reppy gave me an idea in her N-day reforms thread here that a "radiation cleanup" feature and a complimentary "environmental specialist" should be added to the N-day minigame. Non-specialists clean up 1% of radiation per every 1 production spent, while specialists clean up 3% of radiation per every 2 production spent. This allows factions to survive longer and finally makes radiation reversible.