Blockstream's Liquid Network Halted After $320 Million Exploit

Blockstream's Liquid Network, a layer two Bitcoin sidechain, was paused on Sunday after someone exploited a bug in its Elements software to withdraw around 4,000 BTC, worth roughly $320 million. The incident was first spotted by onchain researchers and confirmed by Blockstream and the Sideswap atomic-swap service, which said a customer used the bug to create L-BTC that was then converted and paid out through the Liquid Federation.

Blockstream has paused the network, told exchanges to halt L-BTC deposits and withdrawals, and is trying to contact those responsible, asking them onchain to email its security team. While some are calling the actors white hat hackers (researchers who expose flaws before criminals can exploit them), others are sceptical. Ledger's CTO noted that requesting contact via Signal is unusual for genuine white hats, though he suggested the actors could still have good intentions.

The episode highlights how even established crypto infrastructure can contain critical software bugs that go undetected until exploited at scale, and how ambiguous the line between ethical disclosure and opportunistic exploitation can be.