I’m not sure if it’s dying because this constantly happens. Practically all the image hosts I grew up died ages ago (and many of their replacements, too). Dead image links in older forums are more common than working links. I think it’s very difficult to create a sustainable image and video host, especially when people want to use it mostly in embedded or direct links, which really limits the ability to monetize.

I think websites hosting their own images is often ideal because:

1. It will reduce how many places link to an image, since where forums and social media are concerned, so that if the host of the image goes down, so does the place that links to it, avoid the quite frustrating issue of dead links (which can clutter search results in an unhelpful way – search results generally will never be able to find the image without the page that references it, anyway).
2. The forum is best able to monetize. Direct links to images on different hosts can’t really be monetized, but if it’s the same host, then it’s just one, obvious host to pay for (and so far, the Fediverse seems to be getting a sustainable amount of donations – heck, I’ve donated $20 to my original host so far myself).
3. It ensures that the users of the image are the ones that feel the pain of hosting. When it’s a separate image host, it’s removed from you. But if it’s your Fediverse instance (or reddit or whatever social media), the sustainability is closer to you and thus you’re more likely to donate to help it run or be understanding of things like ads.

That said, the big downsides are inefficiency and tooling. Central hosts meant more efficient caching. Stuff like GIFs in particular are often common memes. I bet the 1000 most common memes are reused by thousands of sites worldwide and thus work great in a CDN (content delivery network – basically a distributed cache for media files). As well, central sites can build embeddable widgets or stuff like GIF keyboards (e.g., the default Android keyboard, GBoard, has GIF support with I think GIPHY and Discord seems to use Tenor). If every site has to host their own, that’s a lot of reinventing the wheel. Common libraries can help, but not to the extent that a managed cloud service can.

As an aside, I wonder if Google and Discord pay for that GIF integration into their products?