The Liquid Network, a Bitcoin sidechain developed by Blockstream, halted operations on Sunday after approximately 4,000 BTC (worth roughly $320 million) was withdrawn from its federation wallet. The funds, representing about 95% of the network’s reported Bitcoin reserves, were taken by purported white-hat hackers. Blockstream has attempted to contact the hackers via an on-chain signed message, but the vulnerability exploited remains undisclosed, and the funds have not been returned. The network suspended activity by turning off bridge nodes, preventing users from sending transactions.
The Liquid Network halted activity on Sunday after purported white hat hackers withdrew roughly 4,000 Bitcoin from its federation wallet. The funds were worth about $320 million at the time. Liquid disclosed the Sept. 6 incident in a post on X.
The withdrawal accounted for about 95% of the network’s reported Bitcoin reserves. Before the incident, the federation wallet held roughly 4,200 BTC. Liquid had not confirmed a return of the funds in its announcement.
A Bitcoin transaction linked to the incident carried an on-chain message. It read: “We are whitehats. Contact us on chain.”
Blockstream attempted to contact the alleged white hat hackers via a signed message on the Bitcoin blockchain. Neither the parties nor the specifics of communication have been revealed.
Liquid claims that the withdrawal went through the Peg-out Authorization Key (PAK). It was stated that the PAK key, as well as any other keys, was not compromised.
PAK restricts the ability to peg out funds only for registered accounts and approved Bitcoin addresses. No information has been provided about the vulnerability that was exploited.
To respond, Liquid turned off the bridge nodes connecting users to the federation’s servers. The crypto exchanges were notified about the security breach and had stopped accepting or withdrawing LBTC.
According to Liquid, the USDT, DePix, and fiat currency created in the sidechain were not influenced by the breach. However, disruption in the wallets is expected, and the sidechain will remain off until the issue is resolved.
The Bitcoin taken was a reserve for the Liquid network, which users deposit in exchange for LBTC. The project was founded in 2018 to accelerate exchange processes between exchanges like Bitfinex, OKCoin, and BitMEX.
