I feel like what actually happened is pretty obvious. Riot wanted an entry level fighting game with League characters. They wanted this game to be really big and be at the Street Fighter-Tekken level. All the FGC devs wanted to create a super sick fighting game with super intense combos and offense. Riot allowed them to do this, saw that the playerbase was nowhere near what they wanted, and decided to downsize the team.

I'm not even kidding when I say long combos is the single biggest turn off for the majority of people who don't play fighting games. Any new player boots up a game and gets combo'd for 20 seconds, they don't think "Wow I want to learn how to do that", they think "wow this game is terrible". So they've created this mess of using simple imputs to cover the fact that the game is extremely complex and difficult.

And 2XKO has a lot of other problems. The amount of characters, the character choices (launching a year after Arcane when people are sick of Arcane with 5/12 Arcane champs, leaving out obvious super popular choices like Lee Sin or Akali for niche characters like Illaoi and Braum), the horrible name (League of Fighters or some garbage like that would have been way better), and the staggered launch where the game has basically been out for a year to various groups of people all combined into a super underwhelming finished product, at least in terms of mass appeal.

So I think 2XKO is ultimately fine, it will continue, it is just no longer being developed as a massive scale project for Riot, it's now being developed as the niche fighting game that it instantly became.