Hello 'mouchmiche',
Is this about that video game? Why in blazes did you send a $160 item with $2 worth of postage?
The item arrived. Canada Post rarely loses anything and in all my years online I have never once had anything 'go missing'. So the problem is that your buyer sees there is no tracking and no way for you to prove it arrived and relishes an opportunity to steal it from you.
Usually a seller has no choice but to refund because you will get a defect on your selling record if the buyer opens a "Not Received" case and have to be forced to refund. Now how exactly you wish to handle it from here will depend very much on your future anticipations and your own private nature.
When selling, when it comes to tracking the rule is that you only send an item without tracking if you can afford to lose it. For most people that limit is about 10 bucks. You might have a different threshold.
If you plan to continue selling with this ID there is little point to fighting about it. If, however, you were just hoping to make a bob or two from a game you don't want, well then you won't be too worried about getting an asterisk on your sales record, will you.
When you say, "He recently contacted me claiming not to have received the item", -- was this simply a message sent to you through the ebay messaging system? Or did he open a case for Not Received and you learned of it that way?
The reason I ask is because taking your situation into consideration, I think if it were me - on a purchase that large - I would wait until the buyer opened the case. Once he does that you will have to refund, but I would want that buyer to make a record of his having filed for 'Not Received'. Scammers tend to be repeat offenders, so if he thinks he can get you to refund quietly on the side, well, he wins big doesn't he. Ebay will notice if someone is filing too many 'Not Received' claims.
Also, by not leaping to the Refund button right away, you might want to gamble for a bit of time and see if you can't gently talk him round. Probably not, but again - if it were me I would be tempted to softly remind him that within Canada parcels simply don't go missing, and I would try to sweetly get him to understand how hurtful his actions are, -- because I have not a scintilla of doubt that he just received it now and saw a way to nab himself a nice early Christmas gift.
But that's if I had just sold my first item. If I were a large volume seller I would probably just refund and kick myself in the pants for mailing a 160-dollar item with 2 bucks worth of stamps. Trying to hang on to the money, or trying to hang on to a perfect selling record, -- you'll have to decide for yourself. Me, on an amount that large I would be disinclined to simply hand it over for the asking.
<< Do i have anything protecting me from potential fraud?>>
Yes, using Delivery Confirmed shipping services on items you cannot afford to lose. If you choose not to do that, there is no one who can protect you from yourself.
You will have to decide what matters most to you and take action accordingly.
I wish you the best. 
