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A vulnerability in the open- sidechain Liquid has left roughly $320 million in BTC outside the network’s control, after actors claiming to be white-hat hackers drained nearly the entire federation wallet on Sept. 6
The actors withdrew approximately 4,000 BTC, representing about 95% of the wallet’s total balance of roughly 4,200 BTC. Liquid’s federation wallet holds the Bitcoin that backs L-BTC issued on the sidechain, meaning most of that reserve now sits with the actors until they make good on a promise to return it.
Bridge Nodes Disabled Across the Network
Liquid confirmed its bridge nodes were shut down following the withdrawal, cutting off new transactions on the network. Exchanges connected to Liquid had either paused or were in the process of suspending L-BTC deposits and withdrawals at the time of reporting. Assets beyond L-BTC issued on the sidechain, including Tether (USDT), DePix, and several real-world assets, were not disrupted.
SideSwap, whose peg-out service processed the transaction, said the withdrawal arrived as a standard customer order using its Peg-out Authorization Key. The key itself was not compromised. SideSwap said the root cause was a bug in Elements, the open- infrastructure
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Blockstream and the Actors Negotiate On-Chain
Blockstream, Liquid’s technology provider, communicated with the actors through signed messages embedded directly in Bitcoin transactions. The exchange began at 6:30 pm UTC on Sept. 6, when the actors identified themselves as white hats and requested on-chain contact. Blockstream responded roughly an hour later, directing them to its security email before following up with a PGP-encrypted message.
The actors later asked whether they could send the bulk of the funds to a Blockstream address, then set a condition: the vulnerability had to be patched and every network node updated before they would transfer anything back. Blockstream replied, “Yes, thank you,” though Jan3 CEO Samson Mow, who published a detailed timeline of the on-chain exchange on X, said the response addressed the return-address question and not the patching condition.
As of 4:12 am UTC on Sept. 7, approximately 3,998.5 BTC had not moved. No further messages had been sent by that point, and the funds had not been returned at the time of reporting.
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Source: coinmarketcap.com