A separate blockchain run by a federation. Anyone can peg in their bitcoin and receive liquid bitcoin, but only the federation can peg you out, destroy liquid bitcoin, and pay out bitcoin on chain.

https://docs.liquid.net/docs/technical-overview

Here are a couple videos:

I use L-BTC for much lower fee Lightning Network channel balancing using

https://boltz.exchange/

Also, I self-custody my L-BTC using Blockstream Jade.