Liquid Network Enters Final Recovery Phase After September Bitcoin Hack
Liquid Network resumes operations one month after hack
The Liquid Network announced on October 20 that it has resumed normal operations more than a month after hackers stole 4,000 bitcoins from the network's federation wallet. The stolen bitcoin was worth roughly $320 million at the time of the theft.
Blockstream, the company behind the Liquid sidechain, negotiated the return of most of the funds through what is described as a "white hat" operation, though the hackers kept about 15 percent, or roughly 600 bitcoin, worth close to $50 million at current prices.
Key points
- Liquid Network is in the final stages of recovery with enhanced security.
- Hackers exploited an inflation bug to create and cash out non-existent LBTC tokens.
- The network is reestablishing its full 1:1 bitcoin backing before reactivating peg-outs.
- Approximately 600 bitcoin remain with the hackers, who demanded a 10 percent bounty.
- Swaps between LBTC and mainchain BTC are now working again.
What the Liquid Network blog says
In a blog post, Liquid Network stated it was entering "the final stages of recovery with enhanced security."
The post explained that the final restoration phase involves reestablishing the network's full 1:1 bitcoin backing, followed by the controlled reactivation of Federation peg-outs for authorized PAK key holders.
Liquid described this as a layer-2 network created by Blockstream that allows users to quickly move assets backed 1:1 with bitcoin, enabling swaps between stablecoins, bitcoin on the Lightning Network, and the Liquid sidechain.
Other details from the incident
The hackers exploited an inflation bug on the Liquid sidechain in September to create over 4,000 LBTC tokens that did not previously exist and then cashed them out for real bitcoin on the main chain.
The hackers communicated with Blockstream through messages written into bitcoin blocks. They claimed to be white hat hackers, though critics argue they were not so "white" since they kept 15 percent of the funds.
Blockstream CEO Adam Back posted on X on October 20 confirming that swaps were working again.
In one message, the hackers criticized Blockstream as "delusional, greedy, and arrogant" and threatened to reveal encrypted messages unless the company paid a 10 percent bounty. They warned that failure to pay would cause a 15 percent loss to all holders due to their "irresponsibility and stinginess."
What is confirmed
Liquid Network has resumed operations and announced entry into the final recovery phase. Swaps between LBTC and mainchain bitcoin are functional again. The network lost 4,000 bitcoin through an inflation bug exploit. Most funds were returned. Around 600 bitcoin remain with the hackers. Blockstream negotiated the recovery.
What is still unclear
It is not clear whether Blockstream reached a private settlement with the hackers regarding the remaining 600 bitcoin or the 10 percent bounty demand.
Why this matters for crypto users
Any disruption to the Liquid Network affects users who rely on it for fast transfers between bitcoin, stablecoins, and the Lightning Network. Restoring full 1:1 backing and reactivating peg-outs is critical for users who hold or trade LBTC tokens.
Sources
Newisty Editorial Team covers technology, cryptocurrency, digital products, online platforms, developer tools and the wider digital economy. Our content is researched from official sources, company announcements, public documentation, market data and other primary or reputable sources. Articles are reviewed and edited before publication for clarity, accuracy and useful context.
Related Posts
US DOJ Seeks Forfeiture of $61M in USDT Tied to Iranian Oil Sales
Cluster Protocol trades at $0.032 as 24-hour volume tops $49 million
