An attacker with infinite resources that doesnt care about monetary losses...

I claim that such an attacker can bring any network to a standstill. So defending against this is not a high priority in the beginning.

I like the simple approach where the fee (insurance) is prepaid before each trade. The fee is tagged with the orderid of the recipient of the offer, not the initiator of the trade. This means that a papercut attack cannot be done proactively, but only if somebody else initiates a trade with the attacker.

So, that means a reputation system will be effective as trading with newbie accounts will carry some small risk that they are a papercut attacker who set a trap.

By linking the fee to the orderid of the one that posted the bid/ask, that means the papercut attack only delays as the fee that was paid is still valid for completing the atomic swap with a real peer. The attacker cant reuse the fee paid, so this is assymetric in a good way.

Granted the victim will be out a fee if their bid expires without the trade being completed. We are talking about 0.13% in the event of an attack, so most of the time not even worth going through a claim process.

But maybe an active trader over time will accumulate a bunch of such failed fees, and I think if there was some sort of automated claim process for this, it solves the practical issues of this theoretical problem.

Before you start complaining that requires trust that this process will be honored, my response is that if this attack scenario remains hypothetical, then it is not an issue. If it does happen and the fees paid for failed swaps are not refunded, then that will damage the reputation of InstantDEX and so there is strong incentive to keep the customer's happy. Keep in mind it is the 0.13% fees that are lost due to an attacker that doesnt care about losing money and just wants to jam things. Typically non-economically viable attacks are not a big priority to solve. But I dont want there to be any obstacles to using InstantDEX, so I will commit to refund the fees paid for atomic swaps that dont complete, as long as the txfees needed to send out the refunds are less than 10% of the refund.

As opposed to having 100% of your capital at risk when you use centralized exchanges.

James