Bitcoin Reserves Fully Restored on Liquid Network After Hack
The Liquid Network has fully replenished its Bitcoin reserves, two months after a significant portion was drained by individuals identifying as white-hat hackers, the Liquid Federation announced Monday.
The federation confirmed that all LBTC, the token representing Bitcoin on the Liquid sidechain, now has 1:1 Bitcoin backing. This development follows the reestablishment of swaps between BTC and LBTC at a 1:1 rate through participating providers several weeks ago.
Blockstream CEO Adam Back, whose company developed the Liquid technology, shared a screenshot of the network’s dashboard indicating assets matched liabilities at 100%, with no reserve deficit. Users operating their own Liquid nodes can independently verify the federation’s reserves, the federation stated.
The federation did not disclose the method used to cover the shortfall left by the hack.
Launched by Blockstream in 2018, Liquid operates as a Bitcoin sidechain, a separate blockchain designed for faster and more private transactions. Users deposit BTC into a federation-controlled wallet, managed by a consortium of exchanges and crypto companies, and receive an equivalent amount of LBTC in return.
When questioned on X (formerly Twitter) about preventing future hacks, Back outlined three enhanced security measures: updated peg-out authorization keys now stored in cold hardware wallets, disabled proof validation caches coupled with a bug fix for nodes, and hardened consensus rules designed to “fail closed.” The network has also undergone multiple third-party audits, he added.
“And lesson: treat with suspicion (don’t trust, verify) AI suggested fixes,” Back wrote.
Back had previously highlighted the increasing influence of artificial intelligence in security during an interview with Bloomberg Television on October 20. He described an “AI-assisted security analysis” trend over the preceding months, noting that while AI can aid in code development and security, it can also be exploited to find vulnerabilities, impacting numerous companies in the sector. At that time, he stated that the stolen funds were still “under investigation.”
The Liquid Federation is currently modernizing its governance structure, aiming to introduce clearer responsibilities and oversight, along with additional technical and operational safeguards. Further details are expected in the coming weeks.
On September 6, individuals claiming to be white-hat hackers withdrew approximately 4,000 BTC, valued at around $320 million at the time, from Liquid’s federation wallet. They communicated with Blockstream via PGP-signed messages embedded in Bitcoin transactions.
The following day, they returned 3,400 BTC, worth about $269 million, after Blockstream announced that Liquid’s bridge nodes had been patched. However, they retained roughly 598 BTC. Charles Guillemet, CTO of Ledger, commented that if the remaining coins were part of a negotiated reward, the arrangement appeared “more like extortion than white-hat hacking.”
Blockstream subsequently refused to pay a ransom for the outstanding Bitcoin. “Taking assets without authorization and withholding their return is a crime, not responsible disclosure,” the company stated. “It is not white-hat activity. It is theft.”
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