In 1985 CompuNet started a project named Multi-User Galaxy Game as a Science Fiction alternative to MUD1 which ran on their system at the time. When one of the two programmers left CompuNet, the remaining programmer, Alan Lenton, decided to rewrite the game from scratch and named it Federation II (at the time no Federation I existed). The MUD was officially launched in 1989. Federation II was later picked up by AOL, where it became known simply as "Federation: Adult Space Fantasy". Federation later left AOL to run on its own after AOL began offering unlimited service.
Source: Wikipedia, "MUD", available under the CC-BY-SA License.