I have a Mark IV and two Mark IIIs, all lubed with Hot sauce, nothing like this has happened to any of them. I don’t think it reacted to the lube, nor do I have any other ideas.

Any suggestions on lubricants to use instead of hot sauce on magnesium?

shimano has made it known they will disallow warrantied repairs if hot sauce is used on their reels. something along the lines of polishing compound that messes with tolerances, as well as a negative reaction with the coating on the stock bearings.

There's really no rhyme or reason to the internet.
Threads with beautiful photos and tales of sports cars as fast river conveyance get locked, and trainwreck threads proliferate with wildass speculation and extrapolation.
There is no way to know what happened to the OP's reel without detailed history of his procedure and photos of its current condition, sans lube.

I once mentioned on Clark's board you could spot-apply a jeweler's aluminum blackener (JAX) to darken scratches on lead-finished reels. Someone extrapolated that into turning a vintage Hardy Perfect blue using B-R Aluminum Black intended to blue aluminum parts on firearms. See the list of caveats on the reel cleaning post.

Shimano voided warranties on spinning and bait reels lubed with Hot Sauce at least partly because they could see the Hot Sauce and had a product of their own to sell, but more importantly, because the grease viscosity is too low for heavily loaded aluminum drive gears, and the oil viscosity is too low for heavily loaded spinning reel drive bearings - both are precisely what makes them desirable in a fly reel (or a baitcaster spool bearing).
There is also an internet rumor of Hot Sauce and the older CI resin being chemically incompatible.
https://www.bassresource.com/bass-fishi ... ano-reels/
My 5-salt-years Tica is in the queue for a rebuild, I have new IAR assembly and bearing set, which will retain their factory lube.
The stainless and phosphor-bronze drive gears will get Hot Sauce. Shaft seals get McLube One Drop.

did you remove and clean the spool latch cap?
I hate this guessing game, but not doing so could be a reservoir for grit.
Doing it is a can of worms, because there's a bar and spring to get reassembled correctly.

taking it off is easy - the tough part is putting it back on.
One of the screws is the axle for the latch bar, and the spring sits between the bar and the cap rim.
I put the screw through the cap, assemble the latch "upside down", and put a piece of scotch tape holding the bar and spring in place.
Assemble to the spool face with just that one screw, but don't tighten, slide out the tape, and add the second screw.