Federated Peg
A two-way peg design where a defined federation of signers jointly controls the locked base-chain funds and authorizes peg-ins and peg-outs.
A federated peg is a specific implementation of a two-way peg (see Kaavon's "Two-Way Peg" glossary definition) in which a defined group of known, often named signers — the "federation" — jointly controls the multi-signature wallet (see Kaavon's "Multi-Signature Wallet" glossary definition) holding the locked base-chain funds, and collectively authorizes peg-out transactions once a required threshold of federation members signs off. This trades some decentralization for simpler, faster, and more predictable operation than designs attempting fully trust-minimized custody.
Because security ultimately rests on the federation members behaving honestly and keeping their individual keys secure, a federated peg's risk profile is closer to that of a well-run, transparent multisig custodian than to the trust-minimized security of the base chain's own consensus — users are trusting the federation not to collude or be compromised, in exchange for the sidechain's other benefits, such as faster transactions or additional features like confidential transactions.
Examples
- The Liquid Network uses a federated peg, where a defined group of functionaries jointly controls the multisig holding pegged-in Bitcoin.
- A federated peg's security depends on trusting the federation's members not to collude, which is a meaningfully different trust assumption than the base chain's own decentralized consensus.