Liquid Federation said on Nov. 3, 2026, that its bitcoin reserves had returned to full 1:1 backing for all LBTC, nearly two months after an exploit allowed approximately 4,000 BTC—worth about $320 million—to be withdrawn from the network.
The reserve recovery did not establish that all withdrawal restrictions were over. Users had been able to swap BTC and LBTC through participating providers for several weeks, and some semi-automated peg-outs had resumed. But direct Federation peg-outs had previously been restricted pending additional security checks, and the Nov. 3 announcement did not say whether the remaining restrictions had been lifted.
How the reserve gap was closed
The attacker took about 4,000 BTC from Liquid’s Federation wallet on Sept. 6. Roughly 3,400 BTC was returned the following day after Blockstream, the developer of Liquid’s underlying technology, patched the affected bridge nodes. The attacker withheld about 600 BTC.
Liquid Federation board member and former Blockstream executive Samson Mow reported the deposits that closed that gap:
- Oct. 28: 50 BTC, leaving 550 BTC outstanding.
- Monday, Nov. 2: 300 BTC, followed by another 250 BTC later that day, restoring full backing.
Mow identified Blockstream as the source of the replenishment funds. Blockstream, led by Adam Back, had previously rejected the attacker’s demand for a 10% bug bounty in exchange for returning the remaining coins, describing the demand as a ransom.
What failed—and what resumed
Liquid’s September incident report traced the exploit to a bug involving cached range proof verifications in Elements, the software underlying the network. According to that report, the attacker created approximately 4,000 unbacked LBTC and used them to withdraw bitcoin through SideSwap, a Liquid wallet and trading platform that is also a Federation member with a peg-out authorization key.
Liquid said its network operators were not hacked and no keys were compromised.
Elements v23.3.4 was released on Sept. 9 to address the vulnerability. Liquid resumed producing blocks later that day, and user transactions returned on Sept. 10. Federation peg-outs remained disabled at that stage.
For users, the distinction is important: restored reserve backing, transfers on Liquid, swaps through providers and direct Federation peg-outs are separate parts of the settlement journey. The latest announcement confirmed the reserve position, not the removal of every remaining peg-out restriction.
Further safeguards planned
Reserve balances are published at liquid.network, and Liquid node operators can independently verify the backing. In its Nov. 3 update, the Federation said it was preparing governance and oversight changes alongside additional technical and operational safeguards, with further details expected in the coming weeks.
Source: The Block’s original article, published Nov. 3, 2026, at 19:48:18 UTC+08:00. This article reflects that reporting date.