The thing is, while there is huge demand for image hosting sites, that demand is really low "quality". After all, we're talking about sites hosting memes and screenshots from games, not original works of art created after tens and hundreds of hours of laboring in Photoshop.

All the pictures of text too, just because text posts on Reddit don't earn karma

And to get around the 140 character limit on Twitter. Though admittedly, most of those are on twimg rather than imgur.