Liquid Network loses $320m in Bitcoin exploit

September 07, 2026 (MLN):A Bitcoin settlement
network relied upon by cryptocurrency exchanges has come under attack, with
roughly $320 million worth of bitcoin drained from its reserves in the latest
security lapse to rattle the crypto industry this year.

The breach struck Liquid Network, a sidechain launched
by Blockstream in 2018, after purported “white-hat hackers” withdrew
close to 4,000 of the 4,200 bitcoin held in its federation wallet.

The network is jointly overseen by a federation
comprising more than 80 exchanges, infrastructure providers and asset managers.

Reports suggest the hacker behind the exploit is
positioning the move as an ethical one, offering to return the funds once the
flaw that enabled the breach is patched, according to coindesk.

In response, Liquid Network confirmed that user wallets
would be affected and issued an apology for the disruption, while suspending
all new transactions on the platform.

It said federation members were working to address the
issue and bring network activity back to normal.

The significance of the incident lies in what Liquid was
designed to do: speed up Bitcoin settlements for exchanges by issuing L-BTC
backed one-to-one against bitcoin held in reserve.

With nearly the entire reserve now drained, questions
have emerged over the resilience of that underlying model.

Notably, the breach did not involve a compromised
password or private key, the method behind the majority of this year’s crypto
hacks.

Instead, funds exited through SideSwap, a platform that
operates as a routine, approved part of the trading infrastructure.

A subsequent review by Blockstream revealed that a
software bug had improperly generated bitcoin within a system known as
Elements.

Because SideSwap could not separate the bug-generated
coins from legitimate ones, it processed them identically. Other asset classes
on the Liquid network were left untouched.

The world’s largest cryptocurrency was last trading 0.18%
lower at $79,659.

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Source: mettisglobal.news