$320 Million in Bitcoin Withdrawn from Liquid Network by Self-Described 'White Hat' Hackers

Liquid Network, a Bitcoin Layer 2 sidechain operated by Blockstream, has confirmed a security incident in which approximately 4,000 BTC (around $320 million) was withdrawn from the Liquid Federation wallet. The withdrawal used the SideSwap Peg-out Authorization Key (PAK), though Liquid says the key itself was not compromised and no other keys are at risk. Other assets on the network, including USDT, DePix and real-world assets, were unaffected.

In response, Liquid has temporarily disabled its bridge nodes, effectively pausing the sidechain while the issue is investigated. Several crypto exchanges have suspended, or are preparing to suspend, LBTC deposits and withdrawals as a precaution. Blockstream is attempting to communicate with the party responsible via signed on-chain messages, after the individual identified themselves as a white-hat hacker and indicated a preference for public, on-chain communication over email.

According to public exchanges relayed by industry commentator Samson Mow, the person behind the withdrawal has said they intend to return most of the funds, but only after a network bug is patched, warning that 'the chain is under risk at latest commit right now.' As of the reporting, the funds had not yet been returned and the investigation was ongoing.

Key Takeaway: Businesses using cryptocurrency platforms or Layer 2 blockchain services should closely monitor official communications from providers during active incidents and pause transactions until a fix is confirmed, rather than relying on informal claims of 'white-hat' intent.