I'm just trying to make incremental progress in my understanding by answering the question "on which ledger is the value stored?" The probability that the 2-way peg is severed is a different discussion.
I think the probability of the 2-way peg being severed is actually central to the definition of "sidechain" vs. "altcoin," and for practical purposes determines investment behavior in the chain.
On one end of the spectrum, if a sidechain's 2-way peg can be severed at the whim of the sidechain devs, it would essentially be an altcoin and would presumably attract about as much investment as altcoins do (not a threat to Bitcoin).
At the other end of the spectrum, if it's mathematically impossible to sever the 2wp, then it is a true sidechain and the value seems to always remain with the Bitcoin ledger (not a threat to Bitcoin, at least not for this reason).
For cases in between, we cannot really call it a true sidechain, and by the same token we cannot really expect substantial portions of the bitcoin holders to just jump over to the sidechain.
In other words, there's a reasoning error to watch out for here:
insofar as the value that could be funneled over to the sidechain relies on the certainty that the 2wp will remain, the concern is self-defeating. If there is any shadow of possibility that the 2wp could be broken, it won't attract that many bitcoins - not much more than any altcoin; and if any sidechain does attract a large portion of the bitcoins, it will only be because the 2wp is as certain of a thing in investors' minds as Bitcoin itself is, which is an extremely high bar.
(This does still leave the possibility that the devs could hamstring Bitcoin deliberately to reduce confidence in Bitcoin to bring it in line with confidence in a not completely solid 2wp so that many people would switch despite some uncertainty. However, this is a much smaller argument to be making.)
Great post as usual, ZB. I mostly
agree: the amount of bitcoins that move to a sidechain will depend, in part, on the credibility of the 2-way peg. And, realistically, it will probably take years for any sidechain to establish enough credibility to attract a significant amount of bitcoins (assuming OP_SIDECHAINPROOFVERIFY is implemented, and even this could take a few years if it happens at all). So I suspect any migration of economic activity away from the Blockchain to be slow and anti-climactic.
Hypothetical Question: If we assume (perhaps unrealistically) that the 2-way peg is unbreakable and if we also assume (again, perhaps unrealistically) that the security of Bitcoin's blockchain remains unchanged with sidechains, what additional risks do sidechains impose? The risks I can see are (a) that sidechains could be used as an "excuse" to avoid addressing Bitcoin's scalability, thereby making the likelihood of an uber sidechain absorbing all the bitcoin more likely (along with the possible shenanigans that such an event might entail), and (b) that it sets a precedent that soft-forking changes to add new "features" are OK.