Liquid Network Paused After Alleged White-Hats Drain $320M in Bitcoin

Liquid Network, a Bitcoin layer-2 chain, has halted operations after nearly 4,000 BTC (worth around $320 million) was recently withdrawn from its federation wallet. The individuals behind the withdrawal identified themselves as “white-hats” and left a message on the blockchain inviting Liquid operators to get in touch. 

The withdrawal marks the largest confirmed DeFi hack in 2026, surpassing KelpDAO’s loss of $292 million and Drift’s approximate loss of $286 million. Liquid stated that other issued assets are safe, but users are facing issues with their wallets, suspended LBTC transfers, and uncertainty regarding the withdrawn bitcoin.

Liquid Network Loses Nearly $320M

Investigators tracked approximately 3,998.5 BTC from Liquid’s reserves to a Bitcoin address following a significant transaction on Sunday. As a result, the reserve dropped from around 4,200 BTC to about 207 BTC.

The transaction included a message stating, “We are whitehats,” and invited direct communication with the operators on the blockchain. However, the claim has not been verified, leaving open the possibility that the individuals involved either safeguarded vulnerable funds, exploited a flaw, or stole the funds.

Liquid explained that the funds were moved using the SideSwap Peg-out Authorization Key. But it emphasized that this key was not compromised.

Liquid is a Bitcoin sidechain that enables faster, confidential transfers and digital asset issuance. BTC locked on the Bitcoin network is represented as LBTC on Liquid, secured by federation operators.

Liquid Freezes Network, Contacts Purported White-Hats

Following the incident, Liquid stated that Blockstream is trying to reach out to the supposed white-hat actors through a signed on-chain message to gather information and find a solution. Additionally, exchanges have been informed, and LBTC deposits and withdrawals are temporarily paused across platforms while federation members investigate the issue.

The network has disabled bridge nodes. This will stop new transactions and effectively pause the Liquid sidechain. Liquid mentioned that USDT, DePix, and real-world assets on the network are safe, though wallet functionality will still be temporarily disrupted. The team, however, has not shared a timeline for when operations will restart, leaving users waiting for more updates from federation members.

Meanwhile, it is important to note that current evidence does not prove that all Liquid users’ funds were stolen or that other assets are undercollateralized. The confirmed issue is the removal of nearly 4,000 BTC from reserves, leading to the suspension of LBTC activities.

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