Liquid Pauses After 4,000 BTC Worth $320 Million Is Withdrawn

Key Facts

Liquid, a Bitcoin sidechain, paused activity after an actor claiming to be a white-hat hacker withdrew about 4,000 BTC worth approximately $320 million from the Liquid Federation wallet, according to reports published on September 7.

The incident involved the federation wallet supporting Liquid, not an unidentified centralized trading platform as the original copy suggested. The actor's identity and the return of the funds had not been confirmed, so the amount should not be described as a permanent loss.

Liquid said the funds were withdrawn through SideSwap's Peg-out Authorization Key, or PAK, and that neither that key nor other keys had been compromised. The published information did not disclose the specific vulnerability that enabled the withdrawal.

Liquid temporarily disabled bridge nodes to prevent new transactions, notified exchanges of the incident, and major venues suspended LBTC deposits and withdrawals. The network said other issued assets, including USDT, DePix and tokenized real-world assets, were not directly affected, although users' ability to transact on the network was disrupted.

LBTC represents bitcoin on Liquid and is designed to be backed 1:1 by BTC held by the federation. Blockstream's documentation says a peg-out requires LBTC to be burned before the corresponding value is sent from the federation wallet to a whitelisted address; the wallet uses an 11-of-15 multisignature arrangement.

The withdrawal represented about 4,000 of the roughly 4,200 BTC held in the federation wallet, or approximately 95% of its reported pre-incident balance. The next decisive developments are confirmation of the funds' disposition, disclosure of the cause, announcement of remediation and resumption of network transactions; no restart timetable had been announced.