Liquid's Bitcoin Backing Is Whole Again, Two Months After $320M Drain

Liquid Network's bitcoin stash is back to full strength. The Liquid Federation announced Monday that the network's reserves have been fully restored, with 1:1 BTC backing reestablished for every LBTC in circulation. That closes a two-month gap opened when self-described white-hat hackers drained most of the sidechain's holdings.

The bleeding started September 6, when the attackers pulled about 4,000 BTC — then worth roughly $320 million — out of Liquid's federation wallet, communicating with Blockstream through PGP-signed messages tucked inside Bitcoin transactions. They handed back 3,400 BTC, about $269 million, the next day after Blockstream said its bridge nodes had been patched, but held onto roughly 598 BTC. Ledger CTO Charles Guillemet said that if the leftover coins were a negotiated reward, the setup looked more like extortion than white-hat hacking. Blockstream refused to pay a ransom, saying taking assets without authorization and withholding them is a crime and theft, not responsible disclosure.

The federation didn't explain how the hole left by the hack got filled. What it did point to is proof: Blockstream CEO Adam Back posted a screenshot of the network's dashboard showing assets matching liabilities at 100% and a reserve deficit of 0.00 BTC. Anyone running their own Liquid node can check the reserves directly, the federation said. Swaps between BTC and LBTC had already been flowing at 1:1 through participating providers for several weeks.

Asked on X what stops a repeat, Back listed three hardened lines of defense: refreshed peg-out authorization keys now sitting in cold hardware wallets, proof validation caches disabled alongside a node bug fix, and consensus rules tightened to fail closed. The network has also been through multiple third-party audits, he said. His parting shot: treat AI-suggested fixes with suspicion — don't trust, verify.

Back had already been waving the AI flag. In an October 20 interview with Bloomberg Television, he described a wave of AI-assisted security analysis over the prior couple of months, saying AI helps develop and secure code but can also surface defects, and that it had been affecting many companies in the sector. At that point, he said the hacked funds were still under investigation.

Liquid, launched by Blockstream in 2018, is a Bitcoin sidechain built for faster, more private transfers: users lock BTC in a federation-controlled wallet and receive an equal amount of LBTC. The federation says it's now modernizing Liquid's governance, with clearer responsibilities and oversight plus more technical and operational safeguards. Details are promised in the coming weeks.