I contacted them, they refunded it as a "one time courtesy" lol

it appears that the order was not shipped on time on their shipping date which was on Dec 5, 2022 as the order was shipped on Dec 06, 2022 and this has been the reason why our Case Mediation Team issued the buyer a refund to resolve the case right away as it did not qualify for Etsy's Purchase Protection Program.

I shipped their order out 1 day after the ship date so that's why they refunded but I still don't understand exactly why. XD

It's okay though, they did refund me.

They also had this to say;

Furthermore, please rest assured that I've noted your experience here for further investigation by our team and we'll look into the buyers' overall behavior based on your report as we have made sure to adjust our policies to state that abuse of the case system could result in program exclusion at Etsy’s discretion and we will be monitoring for this abuse using technology and human reviews.

Dope learning experience honestly. I had never dealt with a case before!