Liquid Network Restores Bitcoin Reserves for LBTC After Hack

On Tuesday, Liquid Federation announced that reserves have been fully restored and the 1:1 Bitcoin backing for all LBTC has returned. The announcement followed several transfers to the federation's reserve wallet, including a final deposit of 250 BTC on November 2. When the shortfall was closed, network records showed approximately 4,268.95 BTC backing an equivalent amount of LBTC.

The hack occurred on September 6 and affected Elements, the open-source software used by the Liquid Network. According to Blockstream, a transaction verification flaw allowed the attacker to create about 4,000 LBTC without depositing the corresponding Bitcoin. The tokens were then converted into real BTC via SideSwap, a federation member authorized to handle withdrawals. Liquid reserves fell from approximately 4,205 BTC to 197 BTC.

On September 7, the attacker returned 3,400 BTC after communicating with Blockstream through messages recorded on the Bitcoin network. The participants claimed they were security researchers working for protection, not attack; their identities and motives have not been independently verified. In Blockstream's September assessment, the remaining amount was estimated at approximately 602 BTC.

Recovery accelerated in late October: 2.5 BTC was deposited on October 27, followed by 50 BTC the next day. Two transfers completed the process on November 2 – 300 BTC and 250 BTC. SideSwap confirmed the sequence and reported that reserves matched the circulating supply of LBTC. By November 3, the figure had risen to 4,270.54 BTC.

Network records show deposits, but the federation's statement did not name all parties that provided replacement Bitcoin. Samson Mow, a member of the Liquid Federation council, responding to a question on X, pointed to Blockstream: “As has been said many times, Blockstream.” The federation has not published a detailed allocation of funds or explained whether other participants made contributions. SideSwap, in a statement on November 3, thanked Blockstream and federation members but did not independently name the source of funding.

Following the hack, the federation suspended withdrawals and network operations while developers addressed the vulnerability. Block production resumed in September, followed by the return of regular transactions. Updated authorization procedures and an independent security audit of Elements v23.3.4 were introduced. According to the plan from October 20, participating providers resumed BTC to LBTC exchanges, while direct withdrawals via the federation remained restricted. SideSwap opened conversion on October 20 at a 1:1 rate with a 0.1% fee; payouts come from the provider's own wallet with manual replenishment, so a queue may form if the balance is depleted. The date for opening direct withdrawals has not been confirmed. The federation plans to upgrade governance, introduce clearer responsibilities and oversight, and add protective measures; details are promised to be revealed in the coming weeks.