What is Peg-Zone?

A peg-zone is a mechanism employed by the Cosmos ecosystem to allow blockchain protocols — such as Bitcoin and Ethereum — which can lack settlement finality (for example because they employ probabilistic finality), to interoperate with the Cosmos Network. Normally, Cosmos makes use of the Inter-Blockchain Communication protocol (IBC) to interoperate with other chains. However, IBC can only be used correctly if both the starting and destination chains are able to achieve settlement finality. To solve this problem, peg-zones were built to serve as a translator zone or "finality gadget." Peg-zones generally employ a 2-way peg, meaning that assets can be sent between chains in both directions.