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And that's very different from paypal freezing accounts and keeping money arbitrarily how?

Paypal has the incentive to keep your money of, well, your money. Listia the company has considerably less incentive to mess with the credits. They are the government issuing the currency. Mess with it too much and they wreck their economy.

It's different because Paypal can't issue money, but Listia can.

I had a similar idea a while ago... I called it BarterCred. I was excited about it until I really began a deeper examination.

The only way I could see to generate actual revenue was to win auctions (by printing credits) and then re-selling the things for real money. I wonder if they came up with something different.

From a legal standpoint, I honestly don't know... but doing something like that sounds like a good way to quickly go out of business, which would be much worse than the possible legal repercussions imho :-)