Liquid Network Restores Full Bitcoin Backing Two Months After $320M Exploit
The Liquid Network has fully restored its Bitcoin reserves, reestablishing 1:1 backing for all LBTC tokens two months after a $320 million exploit drained most of its funds.
The Liquid Network's Bitcoin reserves have been fully restored, two months after self-described white-hat hackers drained most of them, the Liquid Federation said on Monday. The federation announced it had reestablished 1:1 Bitcoin backing for all LBTC, the token that represents Bitcoin on Liquid.
Blockstream CEO Adam Back posted a screenshot of the network's dashboard showing assets matching liabilities at 100%, with a reserve deficit of 0.00 BTC. Users running their own Liquid nodes can verify the federation's reserves directly, the federation said.
Security Improvements
When asked what would prevent a repeat of the hack, Back listed three hardened "lines of defense": refreshed peg-out authorization keys now held in cold hardware wallets, disabled proof validation caches with a bug fix for nodes, and consensus rules hardened to "fail closed." The network has also undergone multiple third-party audits.
And lesson: treat with suspicion (don't trust, verify) AI suggested fixes.
September Exploit Details
On September 6, purported white-hat hackers withdrew about 4,000 BTC, then worth around $320 million, from Liquid's federation wallet, communicating with Blockstream through PGP-signed messages embedded in Bitcoin transactions. The next day, they returned 3,400 BTC after Blockstream patched Liquid's bridge nodes, but kept roughly 598 BTC.
Ledger CTO Charles Guillemet suggested that if the remaining coins were a negotiated reward, the arrangement looked "more like extortion than white-hat hacking." Blockstream later refused to pay a ransom, stating that "taking assets without authorization and withholding their return is a crime, not responsible disclosure."
Governance Reforms
The federation said it is modernizing Liquid's governance structure, introducing clearer responsibilities and oversight, and adding further technical and operational safeguards. More details about these reforms are expected in the coming weeks.
Back had previously commented on AI's growing role in security, describing "a wave of AI-assisted security analysis" over the previous couple of months. He noted that while AI helps develop and secure code, it can also be used to find defects, affecting many companies in the sector.
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