Liquid Network Restores 1:1 LBTC Backing After September Exploit
Four deposits totaling about 602.5 BTC, the last on Nov. 2, restored 1:1 backing for LBTC after the September exploit. The federation has not published who paid, and direct federation peg-outs remain restricted.
Liquid Network says its bitcoin reserves are fully restored, reestablishing 1:1 BTC backing for all LBTC, the sidechain's bitcoin-pegged token, two months after an exploit drained most of them. The final 250 BTC deposit landed on November 2.
The Liquid Federation announced the recovery in a post on X, calling the reserves "fully restored, reestablishing 1:1 BTC backing for all LBTC."
How the hole opened and closed
The exploit began Sept. 6 in Elements, the open-source software behind Liquid. According to Blockstream's security incident assessment, a flaw in transaction verification let an attacker mint about 4,000 LBTC without depositing any BTC. The attacker redeemed the tokens for BTC through SideSwap, a federation member authorized to process withdrawals. Reserves fell from about 4,205 BTC to 197 BTC.
The attacker, who claimed to be a white hat, returned 3,400 BTC on Sept. 7, after messages recorded on Bitcoin's blockchain. The attacker's identity and motives were not independently established, and about 600 BTC stayed missing.
Four deposits totaling roughly 602.5 BTC closed the gap: 2.5 BTC on Oct. 27, 50 BTC on Oct. 28, then 300 BTC and 250 BTC on Nov. 2. Blockchain records showed roughly 4,268.95 BTC backing an equal amount of LBTC when the shortfall closed. By Nov. 3 the figure was 4,270.54 BTC.
Who paid is still unclear
The federation has not published a funding breakdown. Samson Mow, a Liquid Federation board member, attributed the replacement funds to Blockstream. The federation itself did not say where the last 600 BTC came from, and SideSwap's Nov. 3 statement thanked Blockstream and federation members without naming a source. Whether other members chipped in is unknown.
What still isn't normal
Backing is back, but access is not fully open. BTC/LBTC swaps through providers such as SideSwap resumed under the Oct. 20 recovery plan, at 1:1 less a 0.1% fee. SideSwap pays out from its own BTC wallet, which needs manual replenishment, so withdrawals may queue. Direct federation peg-outs remain restricted under enhanced operation, with no confirmed reopening date.
Blockstream released Elements v23.3.4 to fix the flaw, and an independent security review of it has begun. The federation also plans governance modernization, clearer responsibilities and oversight, and added technical and operational safeguards, with details promised in the coming weeks.
"restoring full bitcoin backing marks an important milestone, but our work continues."
Liquid Federation
Anyone holding LBTC can check the numbers rather than take the federation's word: reserves can be verified through Proof of Reserves on Liquid nodes or the public dashboard at liquid.network.
For traders, the practical read is that the peg risk has been repaired, while the exit routes lag. A 1:1 claim matters most when you can redeem at 1:1, and for now that runs through a swap provider's wallet and a 0.1% fee, not the federation's own peg-out. The unanswered funding question also matters: until the federation publishes who covered roughly 600 BTC, the cost of this incident has no public ledger.
