It is a well known fact in the Haskell community that GeneralizedNewtypeDeriving as currently implemented is unsafe. What I don't think people generally realize is just how unsafe it is.
Perhaps the most obvious problem comes when GeneralizedNewtypeDeriving is combined with TypeFamilies using this all to common pair of extensions we can start doing stuff that looks innocuous but then suddenly starts to get ever so slightly suspicious The problem comes when we combine the little functions we have built this is really full featured unsafeCoerce and can even break the most holy Haskell's type system enforced invariants try running this stuff in GHCi.
Okay, so the combination of GeneralizedNewtypeDeriving and open type functions is clearly unsound. More interesting is the fact that you don't need TypeFamilies to type unsafe coerce. Just a healthy GADT (note: I believe this is a new presentation). using GADTs we can pass around proofs of type equality and define classes that talk about them by this point you should know what comes next. We just define a type and start committing atrocities Shucks.
Okay, so now 2 of my favorite extensions (TypeFamilies and GADTs) have been shown to be incompatible with GeneralizedNewtypeDeriving. But, we still are not at the end of the story. If you look at the now 5 year old trac for the "GeneralizedNewtypeDeriving is unsafe" bug, you see that it can also be used to break system invariants in code that is otherwise Haskell98. GeneralizedNewtypeDeriving will lay waste to module boundaries, so many of the assumptions made by common Haskell libraries are trivial to break. In fact, I had wanted to be able to demo yet a third way of typing unsafeCoerce using an alternative representation of type equality proofs for this blog post, but have not been able to get it to work in time. I believe that not only may this work, but it is highly possible that Haskell 98 + GeneralizedNewtypeDeriving admits unsafeCoerce, using type classes to simulate higher ranked types. Research for another day.
The moral is that GeneralizedNewtypeDeriving really needs to be fixed. In an ideal world it would re-type check the definitions to ensure no fishy business was going on. Sadly, I suspect this would break large amounts of existing code. Until then, GeneralizedNewtypeDeriving should be treated as on par with unsafeCoerce. It might be correct, but it just as well might cause your machine to catch fire.
PS: I feel a bit guilty posting this on the same day as (the always brilliant) Bob Harper posted one of his anti-Haskell polemics on the unsafe nature of Typeable. At the Oregon Programming Language Summer School this year, several other Haskellers asked me to publish some of the more demonic Haskell code I have written. I have been traveling since then, and will be again in the coming week, but I felt compelled to show off at least some of the stuff I have done.