Liquid Network has restored full Bitcoin backing for its LBTC tokens, almost two months after a software exploit depleted its reserves. The federation announced the recovery on November 3, although direct withdrawals through its own system remain restricted.
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The Liquid Network federation said all circulating LBTC again has matching BTC in reserve. SideSwap reported 4,270.54 BTC against the same amount of LBTC on November 3. The figures followed a final 250 BTC deposit on November 2.
The return to full backing closes a shortfall of about 600 BTC left after a September 6 exploit. BTC-to-LBTC conversions are available through participating providers, but ordinary federation peg-outs have not fully resumed.
How Did Liquid Network Rebuild Its Reserves
The attack focused on an exploit in Elements, which is the underlying open-source software of the Bitcoin sidechain. As per Blockstream’s analysis released on September 23, the vulnerability existed in the cached rangeproof verification process. It facilitated passing the verification of a transaction that would result in the creation of LBTC without a corresponding Bitcoin deposit.
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The hacker created approximately 4,000 unbacked LBTC and converted them to BTC via the SideSwap service using a federation key to withdraw funds. After the attack, reserves of the Liquid Network decreased from approximately 4,205 BTC to 197 BTC.
On September 7, the hacker repaid 3,400 BTC as a result of communications on the Bitcoin blockchain. People who carried out the attacks declared themselves as white-hat researchers whose identities were not verified separately. Blockstream estimated the number of still outstanding 602 BTC.
The new deposits started from around 2.5 BTC on October 27. 50 BTC was deposited on October 28, then another 300 BTC and 250 BTC on November 2. SideSwap confirmed these transactions were the means for closing the funding gap.
At the moment of restoring the reserve, the balances were approximately 4,268.95 BTC and LBTC. The next day they increased to 4,270.54 BTC and LBTC, according to SideSwap. The reserves dashboard gives the opportunity to monitor balance in relation to circulating coins.
Who Provided Bitcoin to Liquid Network
The federation has not revealed the complete details regarding the replacement funding. One of the board members, Samson Mow, named Blockstream when he was asked about the source. However, his comments did not mention whether any other entity also participated in it.
SideSwap appreciated Blockstream and other members of the federation but did not name the depositors. Blockchain transactions confirm the funds received and do not indicate their financiers. The recovered 3,400 BTC and later reserve payments are two different aspects of the restoration process.
Why Are Liquid Network Withdrawals Still Restricted
In Liquid Network, Bitcoin holdings are recorded using LBTC tokens, which can be transacted on their own blockchain network. Federation nodes generally approve the withdrawal of BTC once the LBTCs are redeemed by the user. This kind of direct peg-out operation is still vulnerable to some security checks.
Under the recovery plan in October 20, providers are enabled to facilitate BTC-LBTC transactions, but withdrawals from the federation remain restricted. SideSwap allowed the use of their peg-out function on October 20. The provider charges a 0.1% transaction fee on a one-for-one basis.
SideSwap makes payments from its own Bitcoin account rather than from the federation. The account needs to be manually topped up; thus, payments can be queued when the balance becomes low. The provider does not give an estimated date when the usual federation peg-out will resume.
Block production in Liquid Network started in September after making necessary software fixes for the problem. Elements v23.3.4 solved the vulnerability in the verification system. Blockstream clarified that there was no compromise of the federation keys in the attack. Other assets, such as USDt and DePix, remained intact.
What Changes Are Planned Next
Liquid Network Federation intends to revamp their governance structure and delineate responsibility after the breach. Additionally, better technical controls, oversight, and processes were also noted by the network that would decrease the possibility of similar vulnerabilities. Further information is likely to follow in the upcoming weeks.
In their update from October, they outlined improvements to reserve accounting software and security analysis. Peg-outs in ordinary circumstances rely on the remaining operational controls. BTC backing thus represents a reserve replenishment process, and not lifting all withdrawal controls.
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This article contains market analysis and price predictions. These are not guarantees. Crypto markets are volatile. Always DYOR. Not financial advice.
Arslan Tabish is a Technical Reporter and Market Analyst at Tron Weekly with over five years of experience covering cryptocurrency markets and blockchain developments. His reporting focuses on Bitcoin, Ethereum, altcoins, and decentralized finance, alongside NFTs, crypto regulation, policy, and Web3 innovations.
Arslan covers blockchain technology, Layer 2 scaling solutions, and emerging use cases, including AI-driven crypto applications, while delivering clear market analysis on how technical and regulatory developments impact digital asset markets. His work is designed for both beginners and experienced readers, offering accurate, easy-to-understand reporting without speculation or investment guidance.
