Liquid Network reported on September 6 that actors withdrew about 4,000 BTC, valued at roughly $320 million, from its federation wallet. The amount represented nearly all of the wallet’s roughly 4,200 BTC balance before the transfer, as first reported by Tom’s Hardware.
Liquid described those behind the withdrawal as purported white-hat hackers. A message embedded in a Bitcoin transaction asked the project to patch every node before the Bitcoin would be returned, and Liquid published its security team’s contact information through the blockchain.
The transfer raises questions about federation controls
Liquid said the withdrawal used SideSwap’s Peg-out Authorization Key, or PAK. The sidechain and SideSwap said their investigation had found no evidence that the relevant key, or any other PAK, had been compromised.
The project suspended or restricted bridge activity while federation members investigated and asked exchanges to halt L-BTC deposits and withdrawals. Users ordinarily lock BTC on Bitcoin’s main network and receive L-BTC, the sidechain’s corresponding asset, for use on the platform.
Nearly the whole reserve was exposed
Blockstream launched the Bitcoin sidechain in 2018 with a federation of more than 80 organizations rather than Bitcoin miners. Fifteen rotating functionaries manage its Bitcoin wallet, and a transfer requires 11 signatures. A withdrawal of this size therefore puts focus on the safeguards around a system used to hold customer-backed BTC and support Liquid-issued assets, including stablecoins. Bitcoin itself and other assets on the network were not reported as directly affected.
Key facts remain unresolved. Liquid has not identified how authorization was obtained, the vulnerability involved, or the software version that needs an update. The actors’ identities are unknown, and it remains unconfirmed whether they will return all of the BTC; reports differ on whether they offered all or only most of it. The final status of the bridge and transaction services has also not been established.
This article was produced with AI assistance from multi-source reporting and is published under our editorial standards.
