How does Manifold work to create a federation?

At a technical level, creating a federation using Manifold relies on a contract between the federation ambassador, the guardians, and the liquidity provider(s). This contract is formed as follows:

First, the ambassador starts the federation creation in a compatible app that uses the Manifold protocol. In the Fedi app, the ambassador needs to first join an eligible federation in order to pay for the service.

Next, Manifold reads a public Nostr registry to see which independent guardians have server seats available and what they charge per seat. It also verifies the trusted status of their signed peer badges. 

Manifold then compiles the guardian set based on PeerBadge verification, price, capacity, & geographical distribution – spreading the federation's servers across as many different guardians, i.e. one fedimint server per guardian.

Once a guardian set is compiled by Manifold and confirmed by the ambassador, the configuration is paid for from the aforementioned eligible federation. Each guardian is then paid for the seat they sold.

At this point, the guardians each start the server they sold, and the federation setup ceremony is run in the background between those servers to establish consensus among them.

This ceremony generates the federation's keys. To ensure security and decentralization, no key is ever copied from one guardian server to another, and Fedi does not take part in the ceremony at all.

Once the ceremony is complete, a liquidity provider is connected to the the newly formed federation. The provider's Lightning gateways allow federation members to make & receive payments.

Keep in mind that the fedimint servers are spread across independent guardians intentionally. Not allowing any individual guardian to run more than one server for a federation mitigates concentration risk.