Liquid Network Restores 1:1 Bitcoin Backing After $320M Hack

Introduction

The Liquid Network has restored full 1:1 Bitcoin backing for all LBTC tokens, nearly two months after a September security exploit drained approximately 4,000 BTC from its reserves.

The recovery closes a major gap in the network's Bitcoin reserves. However, normal operations have not fully returned. Direct withdrawals through the Liquid Federation remain restricted, while SideSwap continues to process Bitcoin payouts using its own wallet, which requires manual replenishment.

Key Highlights

• Liquid Federation confirmed full 1:1 BTC backing on November 3.

• The September exploit involved approximately 4,000 BTC, worth around $320 million at the time.

• The attacker returned approximately 3,400 BTC, leaving nearly 600 BTC missing.

• Blockstream reportedly supplied the Bitcoin needed to restore the remaining reserves.

• SideSwap's Bitcoin wallet refills remain manual, potentially delaying customer payouts.

• Direct Federation withdrawals are still subject to enhanced security controls.

How Liquid Restored Its Bitcoin Reserves

The exploit occurred on September 6, when a vulnerability in Elements software allowed an attacker to create approximately 4,000 unbacked LBTC and withdraw real Bitcoin from the Federation's reserves.

The attacker returned around 3,400 BTC the following day, but approximately 600 BTC remained missing.

During the final recovery phase, additional Bitcoin deposits replenished the reserve shortfall. Liquid Federation board member Samson Mow identified Blockstream as the source of the replacement Bitcoin.

On November 3, the Federation confirmed that its reserves had been fully restored, with approximately 4,270.54 BTC backing the same amount of LBTC.

The reserve balances can be independently checked through Liquid's public dashboard. <Cite refs={["turn863724search0","turn863724search1","turn863724search3"]}/>

Why Bitcoin Withdrawals Can Still Be Delayed

Although the network has restored full backing, direct Federation withdrawals have not fully reopened.

SideSwap has resumed BTC-to-LBTC and LBTC-to-BTC conversions, but currently pays customers using its own Bitcoin wallet rather than relying on the Federation's direct withdrawal process.

The company manually replenishes that wallet. When its available Bitcoin balance runs low, customer withdrawals can enter a queue until another refill arrives.

SideSwap says queued payments are not lost and are processed in arrival order once funds become available. Its standard conversion fee is 0.1%.

This means that restored reserve backing does not automatically guarantee immediate access to Bitcoin for every user. <Cite refs={["turn863724search3","turn863724news2"]}/>

Security Improvements and Next Steps

The September vulnerability was addressed through an update to Elements software, while the Liquid ecosystem has been working on stronger security and operational procedures.

The Federation has also announced plans to improve governance, clarify responsibilities and introduce additional safeguards.

The next major milestone will be the restoration of direct Federation peg-outs. No confirmed reopening date has been announced.

Final Takeaway

Liquid's return to full 1:1 Bitcoin backing represents a major recovery milestone after the $320 million exploit.

However, users should distinguish between reserve restoration and fully restored withdrawal services. SideSwap's manual wallet refills and the Federation's remaining restrictions mean that some Bitcoin payouts may still take time.

The next test for Liquid will be restoring normal withdrawal operations while demonstrating that its upgraded security and governance measures can prevent similar incidents.