My guess is because the decision is made at a high level that a whole project is to be killed, and in order to keep that decision compartmentalized the decision

My guess is because the decision is made at a high level that a whole project is to be killed, and in order to keep that decision compartmentalized the decision is made to lay off the entire staff rather than bringing in mid-level managers to make decisions on who should stay and who should go, which would probably cause the news to leak early. It also makes it a bit better for the laid-off employees. If you keep 50% and fire 50%, the ones that got let go have a much harder sell to their next employer. If you can shrug it off and say 'the whole project got canceled', no negativity is cast on that particular employee. There is also some HR/legal things related to the difference between eliminating positions and firing people. It is easier to claim that the positions are eliminated if you axe the whole project. Then what typically happens swiftly after the lay off is the company offers to re-hire the best performers from that team immediately. I have seen that in 20 person startups and 100,000 person companies. The whole thing is always ugly. In my mind the worst part is when a company heavily recruits a top performer from elsewhere in the company or externally to come work on this project when it is 80% of the way to the cliff, generally by mis-representing the situation, and then axes the whole thing 3 months later. I have seen many people burned by that scenario.