I understand how timelocked refunds can make privacy-destroying tracking wallets like GreenAddress unable to steal deposits, to better convince users to voluntarily submit to the Panopticon.
I don't see any way at all they can be useful for an exchange, nor have I ever heard a satisfactory explanation.
Example:
1. Alices wires $1000 to Mt Gox, and receives credit for this deposit in her account.
2. Bob deposits 1 BTC to a 2-of-2 multisig address negotiated with Mt Gox with a time-locked refund and receives credit for the deposit in his account.
3. Alice places a limit buy order for 1 BTC @ $1000
4. Bob places a market sell order for 1 BTC.
5. Bob's BTC balances is now 0 and his USD balance is $1000
6. Alice's BTC balance is now 1 and her USD balance is $0
What's the state of the time-locked refund transaction?
If it changed at some point in this procedure, where and how did it change?
Did any step 3-6 need to be delayed in order to wait for blockchain confirmations of a new transaction?
Do Alice and Bob have equal protection against BTC loss throughout the entire procedure?