They failed for one simple reason, they didn't make enough money. I you can't monetize a product you go under. I've run enough businesses over the years to know that even if you have a great idea, you have to have a viable revenue source in mind before starting.
I hope they don't regulate AI out of the EU and US, but politicians often don't understand what they are trying to regulate so the regulations fails....
It's really a pity, also for the open source development, think Stability AI was spending too much money, training too many AI models instead of focusing on Stable Diffusion.