TheBlock
Liquid Network paused network activity on Sunday after purported white-hat hackers withdrew approximately 4,000 bitcoin, worth around $320 million, from its federation wallet. The withdrawal drained roughly 95% of Liquid's reported bitcoin reserves, which stood at approximately 4,200 BTC before the incident. Liquid said Blockstream, the network's technology provider, was reaching out to the parties responsible through an onchain signed message, but the network did not identify them or confirm whether the funds would be returned.
Why it matters
The funds exited through the SideSwap PAK, or Peg-out Authorization Key, a custody mechanism used to authorize bitcoin releases from the federation. Liquid said that key had not been compromised, nor had any of its other keys, and has not disclosed the root vulnerability that allowed the withdrawal to proceed. An onchain message attached to a bitcoin transaction linked to the incident read: 'we are whitehats. contact us on chain.' Liquid disabled bridge nodes temporarily and notified crypto exchanges, which have either suspended or will suspend deposits and withdrawals for LBTC, the network's Bitcoin-backed token.
The size of the withdrawal, nearly all of Liquid's reported reserves, puts the federation-custody model under a stress test it has not previously faced. Other assets issued on Liquid, including USDT, DePix and real-world-asset tokens, were unaffected, but the network warned that wallets would be impacted by the disruption.
Market impact
The immediate read is a halt rather than a hard loss. Liquid framed the activity as a white-hat extraction, but the network offered no timeline for restart and no confirmation that the funds would be returned. LBTC liquidity has effectively frozen until federation members restore normal service, leaving holders reliant on over-the-counter exits or the return of the withdrawn bitcoin. Bitcoin spot price action was muted around the disclosure, suggesting the market is treating this as an isolated custody incident rather than a systemic blow.
Frequently asked questions
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How much bitcoin was withdrawn from Liquid Network?
Approximately 4,000 BTC, worth around $320 million, representing roughly 95% of Liquid's reported bitcoin reserves before the incident.
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How did the withdrawal happen if the SideSwap PAK key was not compromised?
Liquid has not disclosed the root vulnerability. The funds exited through the SideSwap PAK, but the network says the key itself was not compromised nor were any of its other keys.
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Are other assets on Liquid Network affected?
Other Liquid-issued assets including USDT, DePix and real-world-asset tokens were unaffected, but wallets experienced service disruption and LBTC deposits and withdrawals are suspended at exchanges.
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When will Liquid Network resume operations?
Liquid has not disclosed a restart timeline. Federation members are working to restore normal activity, but the network remains paused until the incident is resolved.
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Who are the 'white-hat' hackers and will the funds be returned?
Liquid has not identified the parties. They communicated via an onchain signed message reading 'we are whitehats. contact us on chain.' Liquid has not confirmed whether the funds will be returned.
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