Liquid Network Restores Full Bitcoin Backing After Devastating $320M Exploit

Bitcoin layer-2 chain Liquid Network has restored full Bitcoin backing for its circulating L-BTC tokens, marking an important chapter in its recovery from September’s $320 million exploit. The Liquid Federation announced that its Bitcoin reserves now match the entire supply of L-BTC in circulation, following additional deposits completed on November 2. 

The development comes nearly two months after attackers exploited a vulnerability in the network’s bridge infrastructure, creating thousands of unbacked tokens and draining its reserves.

Liquid Network Returns to Full Operation

The final deposits have resolved the reserve shortfall that persisted since the September attack. Recovery updates indicate that the federation received additional bitcoin in stages, starting with 2.5 BTC on October 27, followed by 50 BTC the next day. Later, a further 300 BTC and 250 BTC were transferred, fully covering the remaining deficit and bringing total reserves to approximately 4,268.95 BTC. 

This total matched the reported circulating supply of 4,268.95 L-BTC, restoring the 1:1 backing that supports the network’s Bitcoin-pegged asset. The milestone followed weeks of effort by Blockstream, federation members, and security specialists to address the vulnerability and strengthen the infrastructure.

The technical recovery began earlier, with Blockstream patching the affected bridge nodes and releasing Elements version 23.3.4. Liquid resumed block production and normal transactions on September 10. Subsequent recovery measures included upgraded federation software, improved reserve accounting, and independent security reviews. 

September Exploit Tested Liquid’s Security

The September 6 incident exposed a serious weakness in the infrastructure that moves bitcoin between the main network and Liquid. An Elements software vulnerability let attackers bypass range-proof verification checks and create about 4,000 L-BTC without depositing equivalent bitcoin.

The attackers subsequently used the affected peg-out infrastructure to withdraw bitcoin from the federation’s reserves, leaving the network with a substantial backing deficit.

Before the incident, the federation held approximately 4,205 BTC, but its reserves fell to around 197 BTC following the unauthorized withdrawals and related transactions. Although the federation said its private keys were not compromised, the incident raised difficult questions about the safeguards protecting assets on the network.

The recovery received a significant boost when the attackers, who later identified themselves as white-hat researchers, returned 3,400 BTC. However, approximately 600 BTC remained outstanding, leaving the federation responsible for addressing the remaining shortfall.

The latest deposits have now closed that gap, giving users renewed assurance that their L-BTC holdings have equivalent Bitcoin backing.

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