The Liquid Network is engaged in ongoing discussions with the individuals responsible for a recent security incident to recover remaining funds, though skepticism surrounds the actors’ claims of being white-hat security researchers. Approximately $47 million worth of Bitcoin remains outstanding following the event, with significant uncertainties regarding the terms of the talks and the ultimate recovery.
According to Liquid, Blockstream, the company behind the sidechain, is actively negotiating with the individuals involved. The incident, which occurred on Tuesday, involved a flaw in Liquid’s underlying Elements software. This vulnerability allowed the creation of unbacked L-BTC tokens, which were then exchanged for reserve Bitcoin. While the majority of the funds have been returned, about 600 BTC, valued at roughly $47 million, is still unaccounted for.
Disputed Claims and Technical Details
The individuals identified themselves as white-hat security researchers in a message posted on the Bitcoin blockchain. However, this claim has been met with doubt. Charles Guillemet, Chief Technology Officer at Ledger, expressed skepticism, suggesting that if the situation involved a negotiated reward, it more closely resembles extortion than legitimate white-hat activity. The developers noted that the validation failure occurred at the transaction level before the peg-out was initiated, leading both SideSwap’s node and the Liquid Network’s functionary nodes to accept the unbacked L-BTC as valid.
Liquid stated that the Liquid Federation functionaries were not compromised, and no private keys were lost. The network’s peg-out mechanism, which authorizes withdrawals, operated as designed. USDT and other Liquid-issued tokens were unaffected by the vulnerability, although network operations were paused for users.
Recovery Efforts and Outlook
Following the incident, the individuals returned 3,400 BTC on Monday. The initial withdrawal on Sunday involved approximately 4,000 BTC from Liquid’s reserve, which fell from around 4,205 BTC to 197 BTC after this and other processed withdrawals before operations were halted.
Blockstream is reportedly preparing an emergency update for the Liquid Network, following a patch applied to its bridge nodes on Monday. Once the update is finalized, further adjustments will be made to restore operations and correct the network’s state, including rejecting the invalid withdrawal. Liquid’s immediate priorities are stated as recovering the remaining funds and resuming normal network operations safely and as quickly as possible.
Significant uncertainties remain regarding the terms of the ongoing talks between Blockstream and the individuals involved, as well as a definitive timeline for the recovery of the remaining BTC. The exact identity and motives of the individuals involved are also unclear, leaving the full recovery of the funds uncertain.
Why This Matters
The materials describe a narrow update: A flaw in Liquid’s Elements software allowed hackers to create unbacked L-BTC tokens and exchange them for reserve Bitcoin. The terms of the talks between Blockstream and the hackers.
Broader Context
Source materials place the factual news in this context: Liquid Network said Tuesday that Blockstream, the Bitcoin infrastructure company behind the sidechain, is in ongoing talks with the hackers who exploited the network for roughly $320 million to fully recover the stolen funds.
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