Liquid Restores Full Bitcoin Backing After Exploit
After a software bug and a shortfall of thousands of LBTC, Blockstream’s Liquid says its 1:1 backing with Bitcoin has been fully restored.
Key Takeaways
- Liquid says all LBTC are once again fully backed 1:1 by Bitcoin after a final transfer of 250 BTC.
- In September, a software bug allowed about 4,000 LBTC to be created without backing and redeemed for real Bitcoin.
- The federation says the reserves have been restored, but does not say where the final 600 BTC came from.
Liquid says every LBTC on the network is once again fully backed by Bitcoin, nearly two months after a software bug created a big hole in the reserves. The federation behind the network said Monday that the backing has now been restored 1:1 after a final transfer of 250 BTC.
What Went Wrong in September
Liquid is a Bitcoin sidechain run by a federation of companies led by Blockstream. The network is used by exchanges and traders who want to move Bitcoin faster than is possible on the main network. Users lock up BTC with the federation and receive LBTC in return, a token that is supposed to always be redeemable for one Bitcoin.
That setup broke on September 6. Because of a bug in the software, an attacker was able to create about 4,000 LBTC without any underlying backing and redeem them for real Bitcoin. According to Blockstream’s incident report, that caused reserves to drop from about 4,205 BTC to 197 BTC. The attacker, who said they were a white hat, sent back 3,400 BTC the next day.
Reserves Back to 1:1
The Liquid Federation said on X that the reserves have now been fully restored and that the 1:1 backing for all LBTC applies again. According to the federation, anyone can check the balance through the network’s public dashboard. The federation did not say where the final 600 BTC came from, an amount worth more than $40 million (€35.7 million).
Since the end of October, users have been able to swap BTC and LBTC 1:1 again through providers like SideSwap. Direct withdrawals from the federation still fall under what the network describes as tightened operational controls. The federation also said more details about governance changes will follow in the coming weeks.
Why This Matters
The case shows how vulnerable federated sidechains can be when a small group of parties runs the operation. With this kind of setup, a code bug can directly affect token backing and user trust. For European crypto investors, that matters because this kind of structure is often used to move Bitcoin faster between trading platforms and other services.
The broader impact of the hack also became clear quickly: in September, crypto hacks in September surged, partly because of the Liquid incident.