Liquid Network Pauses After $320M Bitcoin Withdrawal

Liquid Network призупинила роботу після виведення біткоїнів на $320 млн

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Actors claiming to be white-hat hackers moved 3,996 BTC from Liquid reserves and promised to return most of it after a software fix.

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Liquid Network paused activity after actors describing themselves as white-hat hackers 3,996 bitcoin from the system’s federation . The funds were worth about $320 million when the incident was reported on September 6. Nearly 4,000 BTC had moved, but the motives and final outcome were still being established.

Liquid is a Bitcoin sidechain designed to support faster, confidential transfers and the issuance of digital assets. Bitcoin locked outside the sidechain LBTC inside it. A group of federation operators is responsible for securing the underlying reserves, which reportedly held about 4,200 BTC before the withdrawal.

The incident therefore affected roughly 95% of the reported bitcoin reserves. Liquid disabled bridge nodes and asked exchanges to suspend LBTC deposits and withdrawals. Other assets issued on Liquid, including USDT and tokenized real-world assets, were reported as unaffected, although the pause disrupted users of the network.

At first, Liquid said the funds had been withdrawn through SideSwap’s Peg-out Authorization Key, or PAK. The network said the key itself had not been . The unanswered question was how a transaction capable of removing so much real bitcoin had passed through an apparently valid authorization path.

Later reporting added a possible technical explanation. SideSwap said 4,000 L-BTC entered its peg-out service and was burned through a valid authorization. The Liquid Federation then paid 3,996 BTC to the customer’s Bitcoin address. According to SideSwap, Blockstream found that the L-BTC had been created through a bug in Elements, the software behind Liquid.

The people controlling the receiving address left a short onchain message identifying themselves as white hats and asking Liquid to contact them. On September 7, they reportedly offered to return most of the bitcoin after every node had been and the was fixed.

Blockstream replied with a signed message saying the bridge nodes had been patched and that it was safe to return the funds. At the time of The Block’s latest report, however, the roughly 4,000 BTC remained in the attacker’s wallet. A promise to return assets is not the same as a completed transfer.

That gap explains why the phrase “white-hat hacker” remains disputed. Ethical security researchers normally use : they report a flaw, limit harm and coordinate with the affected organization. Taking control of nearly an entire reserve before opening contact is a much more aggressive approach, even if the intention is eventually to give most of it back.

The label also does not answer what will happen to the portion the actors may keep. Their reported offer concerned most of the funds, not necessarily all of them. No final agreement, reward or completed return had been publicly confirmed in the sources used for this article.

The episode shows why the distinction between valid authorization and legitimate assets matters in blockchain systems. SideSwap said its service burned the incoming L-BTC correctly and that its PAK was not stolen. If the tokens were created through a software bug before that step, later checks could still operate as designed while releasing bitcoin against invalidly created assets.

For users, the immediate facts were a paused sidechain, suspended LBTC movements and a large reserve held by an outside party. The encouraging sign was active, cryptographically verifiable communication about a fix and possible return. Until the bitcoin moves back and investigators publish a fuller account, “purported white hats” is the careful description rather than a .

Liquid Network Pauses After $320M Bitcoin Withdrawal

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