Liquid Bitcoin Sidechain Drained of $320M in Major Crypto Exploit

Liquid Network, a Bitcoin sidechain used by cryptocurrency exchanges for faster settlement, has suspended operations after roughly 4,000 BTC (about $320 million) was withdrawn from its federation wallet, representing around 95% of its reserves. Liquid said the funds were taken by purported "white-hat hackers" who claim they will return them once the underlying vulnerability is fixed.

Unusually, the incident did not involve stolen private keys. The withdrawal was processed through SideSwap, a platform authorised to handle Liquid peg-outs, and Liquid confirmed the SideSwap authorisation key and other keys were not compromised. This suggests the exploit targeted a logic or process flaw in how peg-outs are authorised, rather than a direct wallet compromise, making it distinct from typical crypto theft incidents.

Liquid has disabled its bridge nodes and paused new transactions while federation members investigate. Given that Liquid underpins settlement for multiple exchanges and market participants, the incident highlights how vulnerabilities in shared financial infrastructure can have outsized impact even without traditional key theft.