I guess Amazon just started to understand they have no clue about how gamedev industry works. They invested heavily in this, but nobody wanted their proprietary tech with cloud lock-in.
Now they changed strategy to compete with Epic's Unreal by making the engine actually royality-free and open source. It's very logical step that to compete with source-available product you need one under proper open source license with patents grant.
I wouldn't go as far as calling it a complete rewrite. The renderer (called Atom) is completely new, but many other things stayed the same. Our Lumberyard Gem required some work to port over, but that was mostly replacing old CryEngine stuff with the equivalent in the Lumberyard/O3DE API.
Browsing through the code, there's a pretty sizeable chunk of old CryEngine stuff (CryCommon and CrySystem), it's in a directory called "Legacy", but I guess that doesn't mean that it isn't needed anymore.
edit:
> It's definitely not - it's a complete rewrite, with some useful parts of Lumberyard ported over.
https://twitter.com/derekreese/status/1412475974428463107