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Federal was part of the original Outlands along with the sims Stanford, Hawthorne, Shipley, and part of Clyde (which had the "Outlands Wall" and acted as a warning sim). On April 18th, 2003 during a Town Hall meeting) it was announced that the former Outland sims were now mature, non-combat, and Jessie was the new combat sim. The reason for the change was because many residents moved into the Outland sims and did not want to participate in the combat but rather simply live in peace. Degredation of performance in the Federal sim in the ensuing months led to an eventual migration away from Federal, leaving few residents who spent much of their time there, despite land ownership.
Federal used to be the home of Club Elite, which moved in September 2004 to Elite Island after a USD cash transaction with another avatar. Interestingly enough, performance in the sim seemed to improve dramatically after the departure of Club Elite.
Federal is now home the the SL Botanical Gardens on part of the former Club Elite grounds.
Also located in Federal is The Federal Drawbridge, created by Cristiano Midnight, is one of Second Life's only and oldest drawbridges, across the Federal waterway. Say "open bridge" on approach to lift the bridge.