Liquid Network Paused After 4,000 Bitcoin Withdrawn from Federation Reserves

Blockstream’s Liquid Network sidechain has been paused after alleged white-hat hackers withdrew approximately 4,000 bitcoin, worth around $320 million, from its federation wallet on Sunday.

The hackers exploited what appears to be an inflation bug on the Liquid sidechain to create over 4,000 L-BTC, which they then used to execute a valid peg-out transaction for the equivalent amount of bitcoin from the mainchain reserve. The federation’s multi-signature security servers signed the withdrawal, which drained the treasury from over 4,200 BTC to just over 207 BTC.

In on-chain messages, the entity controlling the funds identified themselves as white-hats and requested contact. A subsequent message from an address believed to be Blockstream’s asked the hackers to contact its security team. The network has disabled bridge nodes and advised exchanges to pause L-BTC deposits and withdrawals, though the sidechain continues to produce blocks.

The breach leaves L-BTC holders unable to redeem their tokens for the underlying bitcoin. Industry figures noted that wallets and services using the Liquid Network, such as JAN3’s Aqua, are affected. The resolution likely depends on negotiations with the hackers for the return of the funds.