In canon, Izuku loses all faith in his dream when All Might tells him he can't be a hero. Here, he ends up reinterpreting what he meant after an Adaptational Early Appearance from Shinso.
Canon!Izuku ran thoughtlessly at the Sludge Villain, giving All Might his Heroic Second Wind so that he could save him and Bakugo. Here, Izuku gets the idea to use the Sludge Villain's fear of All Might against him by convincing everybody that All Might is nearby. The Sludge Villain recognizes Izuku from the crowd and becomes convinced that this is true, resulting in the Sludge Villain dropping Bakugo and making a break for it.
