About 4,000 BTC worth $320 million was withdrawn from the Liquid Network due to an alleged bug in Elements

• About 4,000 BTC worth roughly $320 million was withdrawn from Liquid Network’s reserves.
• The incident is believed to be linked to a consensus bug in Elements, rather than a compromise of the federation’s keys.
• The party controlling the funds identified itself as white hats and said it is ready to return the stolen assets once the vulnerability is fixed.

About 4,000 BTC worth roughly $320 million was withdrawn from the federation wallet of the Bitcoin sidechain Liquid Network. The project team confirmed the incident and said the operation may have been carried out by so-called ethical hackers (white hats).

The funds were withdrawn via the SideSwap PAK (Peg-out Authorization Key) mechanism. At the same time, developers said the PAK key itself, as well as the system’s other keys, was not compromised. 

What happened?

According to Liquid Network, after the incident operators temporarily shut down the bridge nodes, effectively halting the sidechain. Crypto exchanges were also notified that they should pause L-BTC deposits and withdrawals.

Other assets on Liquid Network, including USDT, DePix, and tokenized real-world assets (RWA), were not directly affected by the incident, the team said.

SideSwap said that on September 6 at around 14:05 UTC, a user sent 4,000 L-BTC through the peg-out service. The tokens were burned as part of the standard procedure, after which the Liquid federation transferred about 3,996 BTC to the specified bitcoin address. 

Later, Blockstream determined that the L-BTC used likely originated due to a bug in the Elements software. 

There was no Bitcoin hack or key theft

Onchain analyst Benchmark Remu, in his breakdown of the incident, noted that the attack was likely not related to a Bitcoin network hack or the compromise of 11 of the federation’s 15 keys.

In his view, an Elements consensus bug allowed the network to accept improperly minted L-BTC as valid. After that, the standard peg-out mechanism swapped them for real bitcoin from Liquid’s reserves.

The issue is also indicated by a divergence between nodes when processing Liquid block No. 4,050,336. One node rejected the block, while Blockstream’s branch accepted it. Analysts called what happened a likely consensus bug. 

The recipient of the funds left a message on the blockchain: “we are whitehats. contact us on chain.” Blockstream is trying to reach them via signed onchain messages. However, the “ethical hacker” status remains unconfirmed.

Thus, the incident affected Liquid and Elements infrastructure, not Bitcoin’s base protocol. As of the latest updates, the sidechain’s operations remained limited, and the question of restoring L-BTC reserves remained unresolved. 

Earlier, we reported on an outage on the Injective blockchain, likely caused by a hack. 

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