tl;dr - After powering a 1A load with Li-ion and 5V step up converter (U2), connecting to USB causes the Li-ion charger (U1) to overheat and burn
In the attached schematic, U1 is the single cell Li-ion charger. U2 is the 5V step-up converter. 5VON is hooked to a microcontroller digital pin that is driven high during radio transmission.
Background
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This circuit charges a single Li-ion cell and powers a LoRa radio that is 3V-5V tolerant and changes in demand from 20mA during reception to 1A during transmission (it can receive at <5V but in order to achieve max power during transmission it needs to operate at 5V). A 5V step up converter is turned on during transmission but turned off at other times to conserve battery.
Design requirements
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1. When connected to USB, use USB 5V to both charge the Li-ion and power the load (Li-ion is disconnected from the load)
2. When disconnected from USB, power the load with Li-ion
3. Power the load with Li-ion stepped up to 5V if 5VON is set high by a microcontroller
4. There is the case when USB is connected and 5VON is set high - let's assume for now that never happens
Steps to reproduce the problem
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1. Charge the battery with USB. The radio receives on USB power during charging.
2. Disconnect USB. The radio switches seamlessly to using Li-ion for power.
3. Turn on the 5V step-up converter (U2) by driving 5VON high during transmission
4. Turn off the 5V step-up converter (U2) by driving 5VON low after transmission
5. Reconnect USB
6. Watch U1 produce magic smoke

Why is this happening ?