mute is an absolute decision
Actually, no. Mutes can be removed at any time. For example, if an author gets muted, no further upvotes can be cast for any of their posts while the mute is active, but if the mute is removed before the payout time period is reached, then the payout will proceed.
There will be an explanation given every time a mute is either threatened or enacted. There will be an appeal process as well.
There will be Collateral damage
I'm not sure what you mean here. Downvotes create lots of collateral damage. Using mutes rather than DVs should result in less, not more, collateral damage.
if mute should be in community hand in some way, I see the large potential of abuse there
Mute actions will be handled by a team, justification and explanation will always be required, they are appealable and reversible. Anyone who tries to abuse the use of the mute function will be removed from having that authority or capability.
It can work out well but is a pretty centralized point of power.