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The 2 Way Peg application is a tool to convert BTC to RBTC in a more user-friendly way.
For more details visit the official documentation.
There is an almost zero chance of the Locking Cap hitting the max value during the transaction. The precautionary measure of setting a refund address is to virtually make it as safe as possible for peg-ins. However, it is estimated that this will never happen. On the off chance it does, the funds are returned by accessing the refund address.