Pessimism time.
While this news certainly sucks, i'm not surprised in the least. This game was doomed to die, and there wasn't any way to avoid it. It was a perfect storm, i'm afraid. 505 was already on a bad path before Otherworld, as their console Terraria experience didn't match up with the PC one well enough. Pipeworks put the final nail in the proverbial coffin, in that they didn't know how to manage projects, manage their time, and in general develop a game of the calibre of even Terraria vanilla, much less a completely original one.
Optimism time.
However, nothing but good can come out of this in the end. Much like Terraria itself, i expect to see this game resurface in one form or another, but being developed in-house at Re-Logic, rather than being outsourced, the very thing that killed it. If not, i hope to see a game just as amazing.
It's also nice to know that you have the integrity to cancel the game rather than drag development on for a decade, only to deliver a sub-par experience. I'd much prefer cancellation/being shelved for later over a mediocre experience with 10 years development(Final Fantasy XV, anyone?).
Here's to your future endeavours, and i thank you for putting so much effort into your content.
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NO!!!! CONTINUE THE DEVELOPMENT OF THE GAME PLEASE!!!!!
Get over it, kiddo. If it was finished as it is, it would've sucked anyway. I expect it'll be resurrected later on, much like Terraria itself but if not, be glad they have other things in store for later anyway.