I like what you posted. Thanks for sharing.

Yes, nicely said with the basic assumptions.

Yes, creating enough confusion and doubt may be enough. That is why I am offering people to send on-chain to my C-Lightning node so that I will open a channel and send it all back to them over LN. See https://ln.anyone.eu.org/ but I also understand it will need to start with someone that knows me in person or me sending some on-chain funds to a 2of2 multi-sig wallet with the party that wants to enlighten and recycle their UTXO. No hurry :-)

Like many other things in game theory, others will think of the same and will just start doing it at some point if it is a good idea. So I just wait.

I think that surveillance on Bitcoin is all just pure guesswork and FUD. Example: someone first sends a transaction from any exchange that requires KYC. They receive the funds on their wallet (let's say Bitcoin Core) and they send just this UTXO on-chain to yet another address. By surveillance this could have been decoded as:

Surveillance can also correlate different UTXOs (some of them with a clear KYC trace) if they appear as multiple inputs in a single transaction. But still they can just guess on what happens to the transaction output.

Practice: One can buy no-KYC straight from a friend or move only whole UTXOs or use coinjoin.

No idea what peel chains or wallet clustering means.

This is amazing! Thank you!