Loop with undecidable instances in GHC 9.4.3

Summary

Certain undecidable instances are compiled into infinite loops in GHC 9.4.3.

Steps to reproduce

This problem showed up in the logict-sequence test suite. Li-yao Xia somehow managed to figure out that the problem was the way certain instances were compiled. Here's a greatly reduced version:

-- Everything works fine with -O0 and -O. Only -O2 fails.
{-# OPTIONS_GHC -O2 #-}

{-# LANGUAGE FlexibleContexts #-}
{-# LANGUAGE StandaloneDeriving #-}
{-# LANGUAGE LambdaCase #-}
{-# LANGUAGE UndecidableInstances #-}
{-# LANGUAGE MonoLocalBinds #-}
import Data.Function (on)
import Data.Functor.Identity

data ViewT m a
  = Empty
  | a :< SeqT m a
newtype SeqT m a = SeqT [m (ViewT m a)]

toViewT :: Monad m => SeqT m a -> m (ViewT m a)
toViewT (SeqT []) = pure Empty
toViewT (SeqT (h : t)) = h >>= \case
  Empty -> toViewT (SeqT t)
  hi :< SeqT ti -> pure (hi :< SeqT (ti ++ t))

instance (Eq (m (ViewT m a)), Monad m) => Eq (SeqT m a) where
  (==) = (==) `on` toViewT

deriving instance (Eq a, Eq (SeqT m a)) => Eq (ViewT m a)

example :: SeqT Identity Int
example = SeqT []

main :: IO ()
main = print (example == example)

When compiled with GHC 9.4.3, this prints

Buggle: <<loop>>

When compiled with versions 7.10.3, 8.0.2, 8.2.2, 8.4.4, 8.6.5, 8.8.4, 8.10.4, 9.0.2, or 9.2.5, it prints

True

For version 7.8, it works once the source is adjusted appropriately.

Expected behavior

I expect it to print True.

Environment

• GHC version used: 9.4.3

Optional:

• Operating System:
• System Architecture: