Liquid Network, the Bitcoin sidechain launched by Blockstream, says its Bitcoin reserves are fully restored two months after an exploit drained about 4,000 BTC.
The Liquid Federation, the group of exchanges and crypto companies that runs the network, said this week that all LBTC is once again backed 1:1 by BTC. Blockstream CEO Adam Back posted a dashboard screenshot on X showing assets matching liabilities at 100%, with a reserve deficit of 0.00 BTC.
Users running their own Liquid nodes can check the reserves directly.
The federation had not said how the shortfall left by the exploit was covered, or who paid for it, at the time of writing.
How Liquid works
Blockstream launched Liquid in 2018 as a sidechain for faster and more private Bitcoin transfers. Users lock BTC in a wallet controlled by the federation and receive the same amount of LBTC, a token that can be swapped back for BTC.
Full backing matters because each LBTC is meant to be redeemable for one real Bitcoin.
The September exploit
On 6 September, hackers who described themselves as white hats withdrew about 4,000 BTC, worth about $320 million at the time, from the federation wallet. They communicated with Blockstream through signed messages embedded in Bitcoin transactions.
The next day, they returned about 3,400 BTC after Blockstream said Liquid’s bridge nodes had been patched, but kept roughly 598 BTC.
Blockstream refused to pay a ransom for the missing coins. “Taking assets without authorization and withholding their return is a crime, not responsible disclosure,” the company said.
Ledger CTO Charles Guillemet said that if the coins kept were a negotiated reward, the arrangement looked “more like extortion than white-hat hacking.”
Security changes
Back said on X that Liquid has refreshed the keys that authorise withdrawals back to Bitcoin, which are now held in cold hardware wallets. The network has also disabled proof validation caches, fixed a bug affecting nodes and hardened its rules to “fail closed.” Back said Liquid has been through several third-party audits.
Swaps between BTC and LBTC at a 1:1 rate were restored through participating providers several weeks ago.
What happens next
The federation says it is modernising Liquid’s governance, with clearer responsibilities and oversight and extra technical and operational safeguards. It has promised more details in the coming weeks.
