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The original was posted on /r/monero by /u/aaj094 on 2024-10-14 14:48:18+00:00.

It’s a common worry that in the absence of CEXs, the use of p2p channels to swap xmr may give you btc that may be deemed ‘tainted’ and get you into trouble with CEXs when you want a fiat off ramp.

But you don’t need to worry much as there is a simple way to mitigate such troubles.

Let’s say someone has some btc that they think may be tainted. Now if they have a self custodial lightning wallet and have a channel open (for example using Phoenix wallet or similar), there is nothing to prevent them depositing these btc into that channel and increasing it’s outbound capacity. Note that in trying to do so, at no point can their btc get frozen because it’s always in their custody. But once the channel capacity is increased, now there is also no reason why they won’t be able to make a lightning deposit for the full outbound capacity to a CEX who accepts lightning deposits.

The CEX is only looking at their inbound channel (and this isn’t even going to be with you) so there is nothing they have visible to tell them about the nature of your btc.

So my question is: How come this is not a way anyone can make valid deposits to a CEX of btc that may be tainted and yet never run the risk of having their deposit withheld or frozen?

The only entity who could see your deposited btc is the entity you have the channel with but even they cannot actually freeze your btc. At best they may refuse to open the channel. Still, this means the situation is a lot better than getting surprised and having your btc frozen after depositing on a CEX. You then always have the chance to again swap your btc on a dex to get new utxos that may hopefully be deemed clean. The point being this route prevents any entity get leverage on you by freezing your funds after they are in control of it.

All of the above should encourage use of xmr atomic swaps and dexes for liquidity in both directions.