I think you're misinterpreting what "implicit" means here. It doesn't mean "a constraint rustc carries around implicitly but sometimes loses due to a programming bug." It means "a constraint Rust programmers use to reason about their code but which rustc itself does not actually keep track of." "The implicit constraint 'b: 'a has been lost" should more precisely read "the implicit constraint 'b: 'a no longer holds."

Look closely at what happens:

  fn foo<'a, 'b, T> (_: &'a &'b (), v: &'b T) -> &'a T

There is an implicit "where 'b : 'a" clause at the end of this declaration - this clause would be explicit if Rust was more like OCaml. The reason this clause is there implicitly is that in correct Rust code you can't get &'a &'b if 'b : 'a doesn't hold. So when a human programmer reasons about this code they implicitly assume 'b: 'a even though there's nothing telling rustc that this must be the case.

This runs into a problem with the requirements of contravariance, which let us replace any instance of 'b in foo with any type 'd such that 'd : 'b, in particular 'static:

  fn foo<'a, 'b, T> (_: &'a &'static (), v: &'b T) -> &'a T

Since contravariance allows us to replace the &'a &'b with &'a &'static without changing the second &'b, the completely implicit constraint 'b : 'a is no longer actually being enforced, and there's no way for it to be enforced. This is not a compiler bug! It's a flaw in the design.

In particular I don't think there's anything especially magical about 'static here except that it works for any type 'a[1]. If you had a specific type 'd such that 'd : 'a then I think you could trigger a similar bug, converting references to 'b into references to 'd.

[1] Actually maybe "static UNIT: &'static &'static () = &&();" is more critical here since I don't think &'d &'d will work. Perhaps there's a more convoluted way to trigger it. This stuff hurts my head :)