How will dispute resolution happen?

Direct and trustless doesn't necessarily go together in my opinion. The exchange's whole purpose is to reduce counterparty risk and if you were to trade OTC, it seems like that counterparty risk is kind of implied, unless you have a third party arbitrating the whole process.

And if you have a third party, I don't see how that can be decentralized. Perhaps i'm confused, but you need to elaborate further.