Liquid Network Hack Update: 85% of BTC Returned but Serious Depegging Risks Loom

Over the weekend, Bitcoin’s layer-2 privacy side chain, the Liquid Network, suffered a 4,000 $BTC (roughly $320 million) exploit, which was 95% of its total reserves.

In the last few hours, the hackers, who explicitly stated “we are whitehats,” partially lived up to their self-given name. They safely returned 85% (about 3,400 $BTC or roughly $269.2 million) of the drained amount.

Nonetheless, a major depegging threat remains, seeing as the network heavily relies on the 1:1 backing of Bitcoin to L-$BTC.

Liquid Network vulnerability fixed, hackers return funds

Notably, the hackers extracted the stolen funds while flagging the software vulnerability that allowed them to print unbacked L-$BTC tokens and redeem them for real Bitcoin. They then demanded the network’s developer, Blockstream, deploy a patch and update to fix the issue as a prerequisite to fund restoration.

Once this was done, the hackers rerouted 3,400 $BTC back to the Federation’s multisig wallet. The group is now still holding onto the remaining 598.5 $BTC. So far, there is no communication from them or Blockstream regarding the fate of the remaining coins.

Source: Mempool

Current network status

Following the security breach, Blockstream and the federation members disabled bridge nodes, effectively freezing the whole peg-out system.

Major exchanges like Bitfinex and platforms like Aqua wallet followed suit, suspending all L-$BTC deposits and withdrawals to contain the matter.

Notably, tokenized assets like Liquid-based Tether (USDT) and real-world assets (RWAs) were unaffected by the security incident.

However, the deficit means L-$BTC could potentially trade at a discount to Bitcoin if the 600BTC deficit remains uncovered. This could trigger a capital flight, further cutting down the value of L-$BTC.

Blockstream co-founder and CEO Adam Back is yet to comment on the matter. Liquid Network’s last communication remains that the federation members are working to resolve the issue.