Liquid Network Bitcoin Sidechain Hit by $320M Exploit, Most Funds Returned

Blockstream's Liquid Network, a Bitcoin sidechain used by institutional traders, lost around 4,000 BTC (about $320 million) on September 6 after attackers exploited a flaw in its underlying Elements software. The bug, a range-proof verification cache issue, let hackers create fake Liquid Bitcoin (L-BTC) tokens that the system wrongly accepted as genuine, which were then converted into real BTC withdrawals through a partner exchange's payout system.

The attackers identified themselves as white-hat hackers and returned roughly 3,400 BTC once Blockstream confirmed the vulnerability was patched, keeping around 598 BTC (about $47 million) as a self-declared bounty. Notably, the network's multi-party security system, which requires 11 of 15 parties to approve transactions, was never compromised; the flaw was in the software validating transactions before they reached that stage. Other assets on the network, such as USDT and tokenized real-world assets, were unaffected.

Despite the partial recovery, all L-BTC activity remains suspended across exchanges with no confirmed restart date, marking a significant setback for a platform that has operated since 2018.