Liquid Closes Bitcoin Reserve Gap After $320 Million Exploit, but Funding Source Remains Unknown
Liquid has restored full Bitcoin collateralization for its LBTC tokens after a final 250 BTC deposit eliminated the remaining reserve deficit caused by a September software exploit. Despite completing the recovery, the network’s federation has not identified who provided the Bitcoin needed to make users’ holdings fully backed again.
The restoration means every LBTC circulating on the Liquid Network is once again supported by one real BTC. The recovery comes nearly two months after a vulnerability allowed an attacker to withdraw almost all the Bitcoin held in the network’s reserves.
Liquid operates as a Bitcoin sidechain managed by a group of companies known as the Liquid Federation, led by Blockstream. The network is designed to help exchanges and traders transfer Bitcoin more quickly than they can through the main blockchain.
Its system relies on users depositing BTC with the federation in exchange for LBTC. Each issued token is intended to maintain a one-to-one relationship with Bitcoin and can be redeemed for the underlying asset.
That arrangement was disrupted on September 6, when a software vulnerability enabled an attacker to generate approximately 4,000 LBTC without providing the required Bitcoin collateral. The attacker then exchanged the newly created tokens for genuine BTC, draining the network’s reserves.
Blockstream’s incident report showed that Liquid’s Bitcoin holdings fell from approximately 4,205 BTC to just 197 BTC following the attack. The individual responsible claimed to be a white-hat hacker and returned 3,400 BTC the following day.
Although the returned funds significantly reduced the damage, approximately 600 BTC remained unaccounted for, leaving Liquid’s reserves below the amount required to support all outstanding LBTC.
The federation has now confirmed that the deficit has been covered. In a Monday post on X, it said the reserves had been fully replenished, bringing the network back to one-to-one BTC backing following a final transfer of 250 BTC.
Liquid users can also independently verify the reserve position through the network’s public dashboard, according to the federation.
However, the announcement did not explain where the Bitcoin used to complete the recovery originated. The remaining shortfall had been worth more than $40 million, making the identity of the funding source an unresolved question.
Trading between BTC and LBTC has already been available at a one-to-one rate through providers including SideSwap since late October. Direct withdrawals handled by the federation, however, continue under additional operational safeguards.
The federation described these measures as “enhanced operational controls” and said it would provide further information about planned governance changes in the coming weeks.
