Also from the whitepaper it sounds a lot like a variant of merged mining. Basically, as far as I understand, you build a federated sidechain and use a commitment just like the one from merged mining to link the blocks back to Bitcoin's chain. What am I missing?
There are similarities with the merge mining, in that an alt chain can get the benefit from Bitcoin's proof-of-work, but the concept is quite different. This doesn't require the involvement of Bitcoin miners due to attestations (of the alt chain state) being made to a 'subchain' or 'staychain' of transactions on Bitcoin. By committing to this staychain from the genesis block of the alt chain, the alt chain cannot fork. Note that you cannot get this guarantee by just making unlinked timestamped commitments (in any transaction) to Bitcoin.
You get the same properties from a merge mined sidechain, but miners don't have to cooperate. Also, by using a homomorphic commitment scheme, less burden is placed on the Bitcoin chain and attestations have greater privacy and censorship resistance.
Really like the whitepaper.
How does the consensus mechanism work for the sidechain, how is this part regulated? Secondly, how does this paper differ from 'liquid'[1] that has been build by BlockStream?