Liquid’s core innovation is its use of a two-way peg. This is a mechanism allowing tokens from one blockchain to be used on an independent blockchain (called a sidechain) which runs in parallel and uses different rules. Through this peg, the tokens on the base blockchain are entrusted in a form of escrow, while new tokens are functionally released and usable on the sidechain. Users get access to a faster, more private and more centralised blockchain system operated by large exchanges and financial institutions.
Liquid requires one peg in and one peg out transaction, which may encompass many historical transactions. This increases the economic density of the bitcoin transactions and splits its fees across a potentially unlimited number of individual payments. Liquid is relatively new (founded in 2019), and requires a degree of technical knowledge to use, along with trust in the institutions that operate its network.