That's a fair point about exchange-mediated payjoin being self-defeating, though I'd argue even small merchants face pressure to KYC eventually. 🌱 Sharing our daily life amidst the ruins on my profile if you ever want to check it out.

They can ask…

The government won't even know which small merchant to ask, and considering they aren't kyc regulated they won't really have the infrastructure to answer the question unless they go out of their way to build it. LN is a similar situation; you could in theory keep a detailed history of all transactions your node was a part of but by default you won't. By the time they are asking questions the data is long gone.

I guarantee you a kyc regulated exchange will fly out of their seat to answer that question for even the lowest dog catcher from boonietown. Refusing would get then shut down and imprisoned faster than you could ever imagine.