Liquid Network Recovers Most of $320M After Bitcoin Bridge Flaw Exploited

A vulnerability in Elements, the open-source software underpinning the Liquid Network sidechain, allowed unknown actors to generate unbacked tokens and drain roughly 4,000 BTC (worth about $320 million at the time) from the network's federation wallet. The transaction appeared normal and used standard authorisation channels, meaning no private keys were stolen and no obvious intrusion was detected, which made the theft difficult to spot as it happened.

The individuals behind the withdrawal later identified themselves as white-hat hackers, communicating through an encrypted message embedded in a Bitcoin transaction. Blockstream patched the affected bridge software on September 7, and shortly afterwards 3,400 BTC was returned to the federation address. Around 598.5 BTC, worth approximately $47 million, remains outstanding, with talks described as ongoing.

The partial return has raised questions among industry figures, including Ledger's CTO, about whether retaining a large sum is consistent with a genuine white-hat intention. In the meantime, the Liquid Network remains paused, and exchanges supporting its L-BTC asset have been told to halt deposits and withdrawals until further notice.