Even in its prime, Tumblr was never profitable. It was sold and resold to several companies who never had a clear vision for what to do with it, other than run ads to generate revenue. Its main draw was its users. For several years it was the social media platform for LGBTQ and fandoms, along with many niche interests.
Like Reddit, many users had a love-hate relationship with it, and as its policies grew more and more at odds with its power users, the communities which existed fell apart. Banning NSFW content and the heavy-handed automated moderation meant to enforce it was the final straw for me. AI was used to try to detect images of nudes, but tagged a huge amount of false positives such as pictures of animals or even sand dunes. I had my main blog incorrectly tagged as NSFW which made it harder to keep in contact or be discoverable by other users, so I quit. Reddit’s over-reactions to large subs being set to NSFW shows this is a pain point for them. u/spez has made it clear that he will push through whatever policies he wants, regardless of vocal feedback for the actual users of the site.
Tumblr still exists, but it’s a shell of its former self. I check in every so often. Only a handful of the blogs I followed are still active, mostly ones that didn’t interact much with others to begin with. Trending content is incredibly generic, even moreso than /all. Very few of these posts hit more than a few thousand “notes” (for comparison I, a fairly obscure blogger, had about 80,000 notes on my most viral post). When July 1 rolls around I expect Reddit will start to follow a similar pattern. The power users who haven’t left already will drop off the grid one by one until Reddit loses its center of gravity.
Further reading, first one with NSFW-ish photos
https://boingboing.net/2018/12/03/the-death-of-tumblr.html
There's legal issues involving hosting, and that includes mirroring, or acting as an aggregator for, porn. Many admins simply don't want to deal with the headache of that.
It's fine if the fediverse is (mostly) split into sfw and nsfw sides, after all, most people had different accounts for both on reddit in the first place, and much of the rest should have.
And it's not like admins are defederating lemmynsfw.com -- they're only blocking nsfw posts, lemmynsfw wisely has a strict "tag everything" policy. Which means that if someone wants to use their lemmynsfw account to engage in discussion on the sfw side, nothing's stopping them, as long as it's sfw.