CoinDesk
The Liquid Federation says every LBTC is backed by bitcoin again, nearly two months after a software flaw let an attacker mint about 4,000 unbacked LBTC and redeem them for real BTC. A final 250 BTC transfer closed the remaining reserve gap, but the federation has not identified who provided the bitcoin.
Why it matters
Liquid is a Bitcoin sidechain run by a federation of firms led by Blockstream. Users lock BTC with the federation and receive LBTC, which is designed to be redeemable one-for-one. The flaw, exploited on Sept. 6, caused reserves to fall from about 4,205 BTC to 197 BTC, according to Blockstream’s incident report.
The attacker, who claimed to be a white hat, returned 3,400 BTC the following day. That still left roughly 600 BTC missing. The federation has now declared reserves fully restored, but has not explained the source of that shortfall’s repayment. Its public dashboard allows users to check the network’s balance.
Market impact
Users have been able to swap BTC and LBTC at a one-to-one rate through providers such as SideSwap since late October. Direct withdrawals from the federation remain subject to enhanced operational controls, so restored backing does not mean all withdrawal procedures have returned to normal.
The incident highlights the trust required in a federated Bitcoin sidechain: users depend on both the peg’s reserves and the federation’s operational safeguards. The federation has promised further details on governance changes in the coming weeks.
Frequently asked questions
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How did the Liquid exploit create a shortfall in BTC backing?
A software flaw let an attacker mint about 4,000 unbacked LBTC and redeem them for real bitcoin. Reserves fell from about 4,205 BTC to 197 BTC.
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How much bitcoin did the attacker return?
The attacker returned 3,400 BTC the day after the Sept. 6 exploit, according to the report.
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Who supplied the bitcoin that restored LBTC backing?
The Liquid Federation has not disclosed who supplied the roughly 600 BTC needed to close the shortfall.
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Can users exchange BTC for LBTC at a one-to-one rate?
Users can swap BTC and LBTC at a one-to-one rate through providers such as SideSwap.
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Are direct withdrawals from the Liquid Federation back to normal?
No. Direct federation withdrawals remain subject to enhanced operational controls, despite the restored bitcoin backing.
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