Liquid Network Suspends Operations After 4,000 BTC Withdrawal; Most Funds Returned
Approximately 4,000 BTC were withdrawn from Liquid Network’s federation wallet. After 3,400 BTC were returned, about 598.5 BTC remain outside the reserves, while the network and L-BTC operations remain suspended.
Liquid Network incident led to the withdrawal of approximately 4,000 BTC from the network’s federation wallet on September 6, worth about $320 million at the time. Liquid subsequently halted new transactions and suspended network operations and L-BTC operations. According to later on-chain tracking, 3,400 BTC were returned to the federation wallet.
However, approximately 598.5 BTC remained in the wallet of the actor who withdrew the funds, according to a report by The Block. It has not been confirmed whether or when the remaining portion will be returned. The identity of the person or group behind the withdrawal is also not publicly known.
Liquid Network Incident and the Authorization Key
Liquid stated that the withdrawal was carried out using the SideSwap Peg-out Authorization Key. It also claimed that the key had not been compromised. The initial materials available so far do not provide a complete and independently documented explanation of the technical cause or the extent of any potential flaw in the Elements software.
Elements is open-source software for sidechains, which its project describes as security-critical. Liquid operates as a federated Bitcoin sidechain: BTC held in reserves supports the operation of the L-BTC token on the network. The incident does not concern the security of the Bitcoin mainnet.
Communication associated with the actor’s address included a claim that most of the funds would be returned after the bug was fixed. However, labeling the actor a “white hat” is based only on the actor’s own claim and does not confirm intent or the eventual return of the remaining BTC.
What the Liquid and L-BTC Suspension Means
For Liquid users, the outage means that transfers and withdrawals on the network are temporarily blocked. L-BTC operations, involving the asset used on the sidechain, are also suspended. The partial return of 3,400 BTC reduced the immediate scale of the missing reserves, but approximately 598.5 BTC remains outside the federation wallet.
The case also highlights the specific risk of a federated bridge between Bitcoin and L-BTC. According to the statement to date, it did not involve theft of a signing key. However, the reserve withdrawal may have occurred through the peg-out authorization mechanism, while the full technical circumstances remain unclear.
What to Watch After the Liquid Network Incident
- an official technical postmortem report from Liquid, Blockstream, or the Elements Project,
- confirmation of a fix, node updates, and a timeline for restoring the network,
- on-chain movements of the remaining approximately 598.5 BTC,
- SideSwap’s position on the cause of the incident and the restoration of peg-ins, peg-outs, and swaps.
Liquid has not yet confirmed a date for resuming operations. It is likewise unknown whether the remaining BTC will be returned or under what conditions that might happen.
Sources
- Reuters / MarketScreener – Cites Liquid’s original statement about the withdrawal of approximately 4,000 BTC, the suspension of new transactions, and the claim that the authorization key had not been compromised.
- The Block – Reports on-chain communication, the return of 3,400 BTC, and a balance of approximately 598.5 BTC held by the actor.
- ElementsProject/elements – Confirms that Elements is open-source sidechain software described by the project as security-critical; it does not itself report on the incident.
Verified and updated: 09/08/2026 07:36
