[REVISION HISTORY]

Liquid Network exploit and fund recovery

Updated 3 times since CLSTR started tracking revisions of this situation.

What changed

2026-09-10 22:16 UTC → 2026-09-11 05:46 UTC · added ~~removed~~

The Liquid Network, a Bitcoin sidechain developed by Blockstream, suffered a major security exploit on September 6, 2026, caused by a software bug in its underlying Elements technology. A vulnerability in range proof verification caching allowed for the creation of approximately 4,000 unbacked L-BTC tokens, which were used to withdraw roughly 4,000 BTC (valued at approximately $320 million) from the federation wallet via the peg-out mechanism. Following the application of a security patch demanded by the attackers—who identified as ‘whitehats’—3,400 BTC was returned to the Liquid Federation wallet. Blockstream confirmed that core multisignature keys were not compromised and the issue was strictly a software verification failure. Approximately 598.5 BTC, valued at roughly $47 million, remains outstanding as negotiations continue. As of September 10, 2026, the Liquid Network has resumed block production after functionary nodes resumed signing and validating blocks following necessary software updates. However, the network is currently operating “without transactions” to allow developers to monitor stability. Transactions and BTC peg operations, including the ability to move funds between Bitcoin and Liquid or utilize Peg-out Authorization Keys (PAKs), remain suspended. Negotiations between the attackers and Blockstream have shifted from encrypted communications to public plaintext messages. The attackers are reportedly demanding a 10% bug bounty to be paid from Blockstream’s own funds in exchange for the remaining assets. Blockstream CEO Adam Back has stated that the company will compensate for the damages if necessary, while continuing to communicate via encrypted, PGP-signed notes. Liquid has not yet provided a specific date for the full reopening of transaction and bridge systems as work continues to restore the reserves supporting L-BTC.

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