Liquid Network loses 3,996 Bitcoin in liquidity shock: White-hat message offers hope
A massive Bitcoin withdrawal halted bridge activity on the Liquid Network and restricted LBTC liquidity.
Liquid Network, a Layer-2 sidechain settlement network, suffered an unprecedented liquidity shock. This was after roughly 3,996 Bitcoin [BTC] left its Federation peg wallet in one transaction.
The withdrawal erased about 95% of its 4,207 BTC balance, leaving only 197 BTC, disrupting Liquid’s backing structure.
Later on, the funds moved to an address carrying a white-hat message, keeping recovery possible but uncertain. More importantly, operators disabled bridge nodes, effectively pausing Liquid and affecting new transactions.
The exchanges also halted Liquid Bitcoin (LBTC) deposits and withdrawals. This limited movement while Federation members investigate. Meanwhile, other assets remain unaffected, containing the incident largely around Bitcoin liquidity.
Liquid’s recovery now depends on regaining the BTC and restoring bridge operations safely, since prolonged disruption could weaken confidence in its federation model.
LBTC backing holds as bridge access remains frozen
With Liquid paused, the deeper issue remains whether the incident threatens LBTC itself or it just exposed a serious operational failure. SideSwap PAK was able to allow for withdrawals.
On a post on X, Liquid acknowledged that the attacker was unable to compromise either the PAK used to enable those withdrawals or other Federation keys.
This in turn narrowed the attacker’s exploit path. Nonetheless, since approximately 4000 BTC had already been transferred using an apparently normal authorization process, the incident remains unsolved.
Meanwhile, reserves fell from roughly 4,200 BTC to 197 BTC, while circulating LBTC remains near 197 BTC.
The fact that these numbers are so similar indicates that remaining LBTC continues to be backed on a one-to-one basis.
Therefore, there is no immediate risk of insolvency. However, due to the exchange halting all transfers of LBTC and the bridge nodes being disabled, that backing is currently unavailable.
Liquid’s restart becomes the real test
The exchanges have temporarily suspended all deposit and withdrawal functions for LBTC. Moreover, SideSwap has suspended swap, peg-in, and peg-out functions, and the bridge nodes are currently down.
This prevents users from creating new transactions and thus limits user interaction with the system.
Although freezing accounts is an effective method of limiting additional risk, continued non-operation may ultimately limit users’ trust in Liquid’s long-term stability regardless of how much LBTC is backed by cash reserves.
All together, a secure, coordinated restart now determines whether this incident becomes a temporary disruption or lasting reputational damage.
Final Summary
- Liquid Network lost nearly 4,000 BTC, forcing a pause while LBTC backing remains intact.
- Recovery hinges on fixing the authorization failure and safely restoring bridge access.
