Liquid Completes Bitcoin Reserve Recovery After $320M Exploit, Funding Details Still Unclear

Liquid has restored full Bitcoin backing for its LBTC tokens after a final 250 BTC transfer eliminated the remaining deficit from a September security incident. While the network’s federation says its reserves are now fully replenished, it has yet to disclose who financed the recovery.

The restoration ends a nearly two-month period during which Liquid’s Bitcoin reserves were insufficient to cover all outstanding LBTC tokens. The shortfall originated from a software bug that allowed an attacker to create unbacked tokens and exchange them for real Bitcoin.

Liquid is a Bitcoin sidechain operated by a federation of companies headed by Blockstream. It serves exchanges and traders that need to move Bitcoin more quickly than the main blockchain typically allows.

Users deposit BTC with the federation and receive LBTC in return. The token is designed to maintain a one-to-one value with Bitcoin, meaning each LBTC should be redeemable for one actual BTC.

However, that arrangement was disrupted on September 6. A vulnerability in Liquid’s software enabled an attacker to mint roughly 4,000 LBTC without providing the required collateral before withdrawing the corresponding Bitcoin.

Blockstream’s incident report showed that the network’s reserves plunged from approximately 4,205 BTC to just 197 BTC. The attacker, who claimed to be acting as a white-hat hacker, returned 3,400 BTC the following day.

Despite the partial recovery, around 600 BTC remained missing, leaving Liquid with a significant gap between its available reserves and outstanding token liabilities.

The federation has now confirmed that the deficit has been addressed. In a post on X on Monday, it announced that the Bitcoin reserves had been fully restored, reestablishing one-to-one backing for all LBTC following a final transfer of 250 BTC.

The network also said its reserve figures could be checked through a publicly accessible dashboard, allowing users to verify the collateral position independently.

The announcement did not identify the source of the remaining funds. The approximately 600 BTC shortfall was valued at more than $40 million, but the federation has provided no explanation of who contributed the Bitcoin used to complete the replenishment.

Meanwhile, BTC and LBTC swaps at a one-to-one rate have been available through providers such as SideSwap since late October.

Direct withdrawals processed by the federation remain subject to stricter procedures. The network’s operators have described these safeguards as “enhanced operational controls” and said additional information about governance changes would be released in the coming weeks.