The simulations could be imperfect simulations. So, each nested simulation would lose fidelity, simulate a smaller universe, or simulate a universe with less life. I think one hypothesis I’ve heard is that wave functions are an approximation, and the simulation only fully simulates particles when they are observed. Kinda like how games do level-of-detail optimizations when you are further away from objects.

Edit: Another possibility is that nothing says the simulation we’re in started at the beginning of the universe, it could’ve just been given initial conditions and started yesterday for all we know.

I don’t know if we are in a simulation, but I think it’s plausible. I think a God (at least of the religions I know of) is implausible, but possible. I kinda like the many-worlds hypothesis better than simulation theory, but I guess they’re not exclusive.