Liquid Network keeps Bitcoin peg-outs halted as reserve sits about 603 BTC short
In brief
- Elements bug on September 6 let someone create and redeem L-BTC without authorization.
- Federation reserve lost roughly 3,996 to 4,000 BTC, worth around $320 million.
- White-hat actors returned about 3,400 BTC by September 7, per The Defiant.
- Peg-outs remain on hold as of October 11, with no reported resumption date.
How the drain happened
Liquid runs on a two-way peg. Users lock BTC with a federation (a group of members who jointly control the reserve through multisig) and receive L-BTC in return, which is meant to be redeemable one-for-one for the Bitcoin held in that reserve.
That peg broke on September 6. A bug in Elements, the software that powers Liquid, allowed someone to create and redeem L-BTC without authorization, and approximately 3,996 to 4,000 BTC left the reserve. It was valued at around $320 million at the time.
The numbers are stark. Per The Defiant, as reported by Crypto Briefing, the reserve held roughly 4,205 BTC before the exploit and fell to 197 BTC at the worst point. White-hat actors returned roughly 3,400 BTC by September 7, about a day after the drain, but that recovery still left between 598 and 603 BTC unreturned.
The keys weren't the problem.
Crypto Briefing reported that the signing keys held by federation members weren't compromised. Neither was SideSwap's Peg-out Authorization Key.
What's running and what isn't
Liquid restarted normal block production and user transactions on September 10. USDT and tokenized real-world assets on the network weren't disrupted and have returned to normal operations, according to the report.
Redemptions are a different story. Liquid says they won't return until the reserve fully backs every L-BTC in circulation and its security reviews are complete. Blockstream CEO Adam Back has assured stakeholders that the 1:1 peg will ultimately be covered (though the reporting doesn't specify how the shortfall will actually be filled).
No date yet
So when do peg-outs come back? There's no specific date in the available reporting, and Liquid has tied a restart to its own conditions rather than a timeline. L-BTC holders can transact on the sidechain again, but the route back to Bitcoin through the peg stays shut until the gap closes.
Frequently asked questions
What is a peg-out on the Liquid Network?
A peg-out is the process of turning Liquid Bitcoin (L-BTC) back into real Bitcoin. Users lock BTC with a federation that jointly controls the reserve through multisig and receive L-BTC, which is meant to be redeemable one-for-one for the Bitcoin in that reserve.
How much Bitcoin is still missing from Liquid's reserve?
According to The Defiant, as cited by Crypto Briefing, the reserve was about 603 BTC short. Roughly 3,996 to 4,000 BTC left the reserve, white-hat actors returned roughly 3,400 BTC, and between 598 and 603 BTC remained unreturned.
When will Liquid resume Bitcoin redemptions?
No specific date appears in the available reporting. Liquid has said redemptions won't return until the reserve fully backs every L-BTC in circulation and its security reviews are complete. As of October 11, 2026, peg-outs remained on hold.
