Simple, we live in a world that is governed by some physical laws, and as best to our knowledge, they don’t change.
Energy is practically limitless, but finite.
So, if you were to run an ancestor simulation utilizing this energy, you can never achieve the same fidelity in simulation as the universe we live in. This is the second law of thermodynamics.
To simulate the whole universe that we live in, we’d need at least the same amount of energy present in the whole universe, if not more. Practically, it will never happen, and even if it were to happen, entropy of our system would need to increase meaning the simulation would suffer in fidelity.
Now, if it’s simulations all the way down, then we’d want the simulated universe to be able to sustain life, which means we’d need to give it enough time for complex life to appear, and then for them to be able to build ancestor simulations of their own. All this will need us to feed in energy.
To ensure that the simulation runs long enough, we need to ensure that we have enough energy, and since there are practical limitations, we will have to make some tradeoffs. We can keep all the fidelity as our universe, and make the time progress slowly in the ancestor simulation. But, this would not give it enough time for complex life forms to appear; we need to maximize time.
So, we would have to simplify the representation of the world. We would have to let go of some complexities that exist in our world, say turbulence. This would then define the physics in the universe being simulated.
And if we live in an ancestor simulation ourselves, extending this argument would mean that our universe is also a simplified version of a more complex universe somewhere out there. And that if it is ancestor simulations all the way down, at one point it will become extremely simplified and the fractal consumption of energy will become so small that further sims would either won’t be imaginable (the last form of simplicity), or the simulation wasn’t complex enough for complex life form to appear and then eventually develop capabilities enough to run ancestor simulations, or there’s not enough energy to build a simplified system that can run long enough for another fractal iteration.
From their on, it’s a matter of time till the lights everywhere go off.