Transfer of 22.65060846 allBTC Restores Full Osmosis Backing After Nomic Flaw
Key Facts
Alloyed BTC has regained full backing after an Osmosis upgrade transferred 22.65060846 allBTC to the Liquidity SubDAO and removed unsupported nBTC units from the basket. Osmosis said in its update that "allBTC is fully backed again," while current pool liquidity data showed no nBTC among the collateral. CryptoNews.net reported the update but was not the party announcing the restoration of backing. The move followed a flaw in Nomic bridge’s custom routing mechanism that allowed nBTC to be created without corresponding bitcoin, most of which then entered the allBTC converter. The upgrade restored backing, but did not mean that all the bitcoin that left Osmosis had been recovered.
The incident began on 25 June 2026, when the Nomic bridge created 40.650602 BTC of nBTC on Osmosis without corresponding bitcoin, through 25 identical transfers in a single Nomic transaction. According to the recovery proposal published on the Osmosis community forum, 39.839746 BTC of those counterfeit units entered the allBTC converter. The flaw therefore affected the backing of the pooled product, even though it originated in Nomic’s custom routing mechanism. When the proposal was published, allBTC’s actual backing stood at 63.97%, with 39.839746 BTC of unsupported nBTC counted as collateral. Including those units in the collateral calculation inflated reported assets relative to the bitcoin actually backed, requiring their removal from the basket under the recovery plan.
An emergency action carried out on 7 September 2026 preserved 22.650608 units of attacker-linked allBTC by freezing them through the v31.1.0 upgrade implemented by validators. The freeze preserved the units but did not itself authorize their allocation to address the shortfall. The community proposal said the Osmosis pool held 12.4838 allBTC, while the shortfall after accounting for the frozen units was 17.189137 BTC. The plan therefore required a governance decision authorizing community pool assets to be directed to the Liquidity SubDAO, along with the removal of unsupported nBTC from the basket. An Osmosis representative said on 24 September that the proposal to move funds from the community pool to the liquidity entity had passed, and that recovering the remaining frozen allBTC required a second proposal and a chain upgrade.
The upgrade remained under follow-up during October; on 12 October, an Osmosis representative said its release was still in progress and testing, with the target schedule remaining by the end of the month. The official v32 upgrade release notes recorded the transfer of 22.65060846 allBTC from the exploiter to the Liquidity SubDAO on Osmosis mainnet only. The notes also said the upgrade would be halted if the balance was below the required amount. The Osmosis update confirmed that Alloyed BTC backing had been fully restored after unsupported nBTC was removed from the basket. The withdrawn nBTC units remained with the Liquidity SubDAO pending a separate proposal to burn them, according to the update.
Osmosis did not recover all the bitcoin that left the network; the September proposal estimated that about 18 BTC equivalent had been taken out of Osmosis and laundered through Tornado Cash, and could not be recovered directly. This distinguishes the token’s restored backing from the recovery of assets lost in the incident: the former was achieved by removing unsupported claims and using frozen units and community assets, while the cited amount remained beyond the scope of direct recovery. The Osmosis update said app deposits and withdrawals were expected to resume soon. The withdrawn nBTC remained with the Liquidity SubDAO pending the separate burn proposal, according to the same update. These subsequent steps remain tied to the separate proposal and the resumption of app operations as announced.