Liquid’s bitcoin reserves returned to full 1:1 backing for all LBTC, the Liquid Federation announced on Nov. 3, 2026, nearly two months after an exploit allowed approximately 4,000 BTC—worth about $320 million—to be withdrawn from the network.
Liquid Federation board member and former Blockstream executive Samson Mow identified Blockstream as the source of the bitcoin used to close the reserve shortfall. Restoring reserves did not, however, establish that all withdrawal restrictions had ended: the announcement left the status of remaining direct Federation peg-out restrictions unclear.
How the reserve gap was closed
The attacker took about 4,000 BTC from the Federation wallet on Sept. 6. Roughly 3,400 BTC was returned the following day after Blockstream, which develops Liquid’s underlying technology, patched the affected bridge nodes. The attacker withheld about 600 BTC.
Blockstream later rejected the attacker’s demand for a 10% bug bounty in exchange for returning the remaining coins, saying it would not set a precedent of paying a ransom far beyond its economic participation.
Mow reported three subsequent deposits that closed the gap:
- Oct. 28: 50 BTC, leaving 550 BTC outstanding.
- Nov. 2: 300 BTC, followed by another 250 BTC later that day.
Asked on X where the bitcoin came from, Mow answered: “As stated many times, Blockstream.”
The Federation publishes reserve balances at liquid.network, and Liquid node operators can independently verify the backing.
What the exploit involved
According to Liquid’s September incident report, the vulnerability involved cached range proof verifications in Elements, the software underlying Liquid Network.
The bug allowed the attacker to create approximately 4,000 unbacked LBTC. Those tokens were then used to withdraw bitcoin through SideSwap, a Liquid wallet and trading platform that is also a Federation member with a peg-out authorization key.
Liquid said its network operators were not hacked and no keys were compromised. Elements v23.3.4, released on Sept. 9, addressed the vulnerability. Liquid resumed block production later that day, and user transactions returned on Sept. 10. Federation peg-outs remained disabled at that stage.
Full backing is separate from unrestricted withdrawals
By the Nov. 3 announcement, users had been able to swap BTC and LBTC through participating providers for several weeks. Direct Federation peg-outs—withdrawals from Liquid back to bitcoin—had been restricted pending additional security checks, although some semi-automated peg-outs had resumed.
The announcement did not say whether the remaining restrictions had been lifted.
The Federation also said it was preparing governance and oversight changes, alongside additional technical and operational safeguards. Those measures were still being prepared; further details were expected in the coming weeks.
Original reporting: The Block, published Nov. 3, 2026, at 19:48:18 UTC+08:00.