Liquid Federation restores 1:1 Bitcoin backing for LBTC two months after hack
In brief
- LBTC is backed 1:1 by Bitcoin again, Liquid Federation says
- Federation didn't say how it covered the shortfall from the September hack
- Peg-out keys now sit in cold hardware wallets, Blockstream CEO Adam Back says
- Hackers took about 4,000 BTC on September 6 and returned 3,400 BTC
- Adam Back warned developers not to trust AI-suggested fixes without checking them
How the reserves came back
Liquid is a Bitcoin sidechain launched by Blockstream in 2018 for faster and more private transfers. Users lock BTC in a wallet controlled by the federation (a group of exchanges and other crypto companies that run the network) and get the same amount of LBTC back.
The hackers went after that wallet.
According to the federation's statement on X, as reported by Decrypt, full backing came several weeks after BTC-LBTC swaps resumed at a 1:1 rate through participating providers. Anyone running their own Liquid node can check the reserves directly, it said. Blockstream CEO Adam Back posted a screenshot of the network's dashboard showing assets matching liabilities at 100%, with a reserve deficit of 0.00 BTC.
Back's three lines of defense
In posts on X, Back listed three hardened lines of defense. The peg-out authorization keys have been refreshed and now sit in cold hardware wallets. Proof validation caches are disabled and a node bug has been fixed. Consensus rules have been hardened so they fail closed. He said the network has also been through multiple third-party audits.
"And lesson: treat with suspicion (don't trust, verify) AI suggested fixes," Back wrote.
He's raised AI before. In an October 20 interview with Bloomberg Television, Back described a wave of AI-assisted security analysis over the previous couple of months. He also said the hacked funds were still under investigation.
The federation said it's modernizing Liquid's governance structure and adding more technical and operational safeguards, with details due in the coming weeks.
What happened in September
On September 6, purported white-hat hackers withdrew about 4,000 BTC from the federation wallet, Decrypt reported. That was worth around $320 million at the time. They talked to Blockstream through PGP-signed messages embedded in Bitcoin transactions.
The next day they returned 3,400 BTC (about $269 million at the time) once Blockstream said Liquid's bridge nodes had been patched. They kept roughly 598 BTC.
Ledger CTO Charles Guillemet said that if the remaining coins were a negotiated reward, the deal looked "more like extortion than white-hat hacking." Blockstream later refused to pay a ransom for the outstanding Bitcoin and, in a statement, called taking the assets theft. The federation's latest statement doesn't say how it covered the gap.
Frequently asked questions
What is LBTC on the Liquid Network?
LBTC is the token that represents Bitcoin on Liquid, a Bitcoin sidechain Blockstream launched in 2018. Users lock BTC in a wallet controlled by the Liquid Federation, a group of exchanges and other crypto companies that run the network, and get the same amount of LBTC.
How much Bitcoin was taken in the Liquid hack?
On September 6, purported white-hat hackers withdrew about 4,000 BTC from Liquid's federation wallet, which was worth around $320 million at the time. The next day they returned 3,400 BTC (about $269 million) and kept roughly 598 BTC.
What security changes has Liquid made since the hack?
Adam Back listed three hardened lines of defense. Peg-out authorization keys have been refreshed and are now held in cold hardware wallets. Proof validation caches are disabled alongside a node bug fix. Consensus rules now fail closed. He said the network has also been through multiple third-party audits.
