Peg-in

A peg in the Bitcoin context is the mechanism that ties units on a sidechain (or other separate system) to BTC on mainnet at a fixed 1:1 ratio. Pegging is the process of moving BTC across that mechanism.

The two operations:

• Peg-in: lock BTC on mainnet, receive equivalent sidechain tokens. The mainnet BTC is locked in a multisig or script controlled by the sidechain's peg infrastructure.
• Peg-out: burn or move sidechain tokens, receive equivalent BTC on mainnet from the peg's locked reserve.

The result: sidechain tokens are economically indistinguishable from BTC (1 L-BTC = 1 BTC), but they live on a separate chain with different properties.

Peg architectures vary by trust model:

• Federated peg (most common, used by Liquid). A consortium of trusted operators controls the locked BTC via multisig. Peg-in is permissionless (anyone can lock BTC); peg-out requires a federation threshold to sign.
• Drivechain peg (proposed, BIP-300). Bitcoin miners vote on peg-out withdrawals over a long period. Not yet active.
• SPV peg. Sidechain validators check mainnet SPV proofs to verify peg operations. Used in some research designs; not in widespread production.
• One-way peg (proof-of-burn). BTC moves to the sidechain via verifiable destruction; there's no return path.
• Trustless peg via covenants. Future option if covenants like CTV activate; would enable more trustless peg constructions.

The peg mechanism is the trust hotspot for any sidechain. A federated peg is only as good as the federation's honesty and operational security. A drivechain peg is only as good as miner alignment. Different users will value different trade-offs.

See Peg-out, Peg-Guard, Sidechain, and Liquid Network for related concepts.