No it got popular because Reddit pissed a lot of people off temporarily. The only thing segregated instances does is confuse and upset the average person. Hell I host like 10 different alternative open source front ends for various websites and I fucking hate Lemmy instances. It makes Discovery new content unbelievably tedious.
What if I just want to browse communities? I can only do that on a per instant spaces, I have to go to that instance go to its communities tabs to browse and then if I find something I want I have to take its address and then go back to my own instance so I can subscribe to it with my account. That pisses me off and makes me not want to bother with it let alone the average user.
The sad state of reality is that centralized systems will always eventually get turned into corporate greed money machines but decentralized instances are by their very nature just shit and hard to work with and no one wants to put up with them.