So Blue Wallet rugged their entire user base, am I understanding this correctly?

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What happen?

They ran a custodial thing. And they announced they are sunsetting it. I'm no shill for a JavaScript wallet, but "rug" is an ingracious interpretation.

Not exactly, but it’s not good news if anyone using their custodial node isn’t paying attention to their blog for the next 60 days. I bet a lot of people got onboarded that way who won’t have a clue about this.