Love this discussion regarding feedback on the following proposed setup with a Bitcoin-centric perspective:
  1. KYC'd coins (Onchain) -> 2. FixedFloat (Onchain -> Lightning) -> 3. Lightning Wallet (Muun / WoS, Lightning -> Onchain) -> 4. Non-KYC coins (Onchain).
The primary goal here is to break the transaction history from the original KYC source. From my analysis, this approach seems to align well with Bitcoin's principles of privacy, cost-effectiveness, and speed while minimizing risk. Notably, no party can see more than one step in either direction.
I believe that both FixedFloat and Muun are excellent choices for this setup. They can be accessed anonymously, offer low fees, and avoid the need to run your own Lightning nodes, which can be appealing to Bitcoin maximalists. Despite some criticisms of Muun, it appears to have some of the lowest fees for Lightning -> Onchain transactions.
In comparison to typical Coinjoins, this Lightning-based approach seems faster, cheaper, and more user-friendly, especially when considering issues like avoiding toxic change and the need for always-online setups. However, it's essential to acknowledge some limitations, such as an upper limit on UTXO size, a brief custodial risk window, and the possibility of secondary chain analysis during intermediate steps.
I invite your thoughts and feedback on how to further develop or improve this approach within the Bitcoin ecosystem. Do you believe there's a better way to leverage Lightning instead of Coinjoins, specifically for Bitcoin maximalists?
Let's engage in a constructive dialogue to explore the potential of enhancing Bitcoin transaction privacy while staying true to the core principles of decentralization and censorship resistance.