What Happened
Liquid Network disclosed on Sunday that nearly its entire bitcoin reserve—approximately 4,000 of 4,200 BTC—was withdrawn from its Liquid Federation wallet in what the network described as a security incident, according to Bloomberg and Reuters. The network, launched in 2018 by Blockstream, immediately halted new transactions and warned users that wallet functionality would be disrupted while federation members work to restore service.
The perpetrators are described by Liquid as "purported white-hat hackers," individuals who exploit vulnerabilities with the stated intention of returning stolen funds, often in exchange for a bounty. According to The Block, Blockstream is attempting to contact the parties responsible through an onchain signed message, though neither the identity of the hackers nor confirmation of any return agreement has been disclosed. The network is overseen by a federation of more than 80 exchanges, infrastructure firms, and asset managers, according to CoinDesk.
According to CoinDesk, the exploit did not result from a compromised password or private key—the method behind most crypto hacks this year—but instead involved a different attack vector. The network issues L-BTC tokens against bitcoin locked in reserve to enable faster settlement than the main Bitcoin blockchain allows, and the near-total depletion of that reserve raises fundamental questions about the security architecture of the sidechain model.
