A middleman doesn't need to hold both the litecoin and PayPal. The middleman only needs to hold one of the assets. For example;
If a someone is buying litecoin for PayPal, the litecoin can be sent to the MM, then the buyer sends the PayPal to the seller. If the PayPal doesn't get sent, the MM can give the litecoin back to the seller, if the buyer does send the funds, the MM can send the litecoin to the buyer. No need to hold both the PayPal and litecoin at the same time. Additionally, most people who do middleman deals, like myself, don't want to hold the PayPal aspect, as it puts the MM at risk, due to chargebacks.
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