Well bitstamp isnt trying to algorithmically peg - they're saying trust our host security, cold wallet physical security, audit, governance / separation of duty etc. Ie you are trusting humans to manage an IOU. (Not saying bitstamp is a bad exchange).
I must be missing some essential detail. I understood that each sidechain would be just a black box from the viewpoint of the bitcoin protocol, and its designers/developers would be free to choose whether and how to peg its operations to the bitcoin chain -- without the bitcoin network having to know about it. Is there more to the 'sidechain' concept than that?
Could a sidechain be a BTC/USD exchange providing sub-second trades with cryptographic certificates? It would not be possible to peg every such trade to the blockchain, right?
Well the term sidechain is sort of fuzzy pre-existing term that means something like a related chain that watches or interacts with a parent or sibling chain.
I suppose I should say pegged sidechain because then that implies (compact) spv-proofs etc and then a chain is doing whatever it wants but its peg return requests must be signed by the DMMS signature composed of the majority of its miners view of the correct status of that from the sidechains point of view.