In this article5 sections
The Liquid Network’s bitcoin reserves are fully restored, with 1:1 backing reestablished for every LBTC in circulation, the Liquid Federation said on November 3, 2026. The announcement closes a deficit left by a September exploit in which about 4,000 BTC, then worth around $320 million, was drained from the federation wallet, Decrypt reported.
Blockstream, which develops the technology behind Liquid, published a dashboard screenshot through chief executive Adam Back showing assets matching liabilities at 100% with a reserve deficit of 0.00 BTC. The federation did not disclose how the remaining shortfall was funded in its public post.
Also readMagic Eden Flags Old Ethereum NFT Listings in V2 Exploit
Key facts
- On September 6, purported white-hat hackers withdrew about 4,000 BTC from Liquid’s federation wallet and returned 3,400 BTC (about $269 million) the next day, keeping roughly 598 BTC, per Decrypt.
- Bitcoinist reported specific replacement deposits: 50 BTC on October 28, two transfers totaling 550 BTC on November 2, and a final 250 BTC deposit that cleared the remaining deficit, leaving about 4,270 BTC backing a matching amount of LBTC.
- Back listed three hardened defenses on X: refreshed peg-out authorization keys held in cold hardware wallets, disabled proof validation caches with a node bug fix, and consensus rules changed to fail closed.
- BTC-to-LBTC swaps at a 1:1 rate through participating providers resumed several weeks before the reserve restoration, the federation said.
- Samson Mow, a Liquid Federation board member and former Blockstream executive, identified Blockstream as the source of the replacement bitcoin, according to Bitcoinist.
How the reserves were rebuilt
The two outlets describe the recovery from different angles. Decrypt’s account focuses on the federation’s announcement, the verification tools and Back’s security remarks. Bitcoinist adds a funding trail, reporting the deposits that closed the gap and citing Mow on where the bitcoin came from, while noting the federation gave no detailed funding breakdown. Blockonomi reported that the federation said its reserves remain independently verifiable through Proof of Reserves on Liquid nodes and a public dashboard at liquid.network.
Bitcoinist described the original flaw in Elements, the software underlying Liquid, as relating to how transaction verification results were cached, allowing roughly 4,000 LBTC to be created without matching deposits and later swapped for real BTC through SideSwap. Reserves fell from approximately 4,205 BTC to 197 BTC before operations were halted, that outlet reported. The exploit affected Liquid’s sidechain software, not Bitcoin’s base blockchain.
Also readStrategy Holders Back Daily Dividends on Four Preferred Stocks
Dispute over the missing coins
The incident drew criticism after the hackers kept about 598 BTC. Ledger CTO Charles Guillemet said that if the remainder was a negotiated reward, the arrangement looked more like extortion than white-hat hacking, Decrypt reported. Blockstream declined to pay a ransom, saying that taking assets without authorization and withholding their return is theft rather than responsible disclosure.
Back also raised a lesson about tooling, urging developers to approach AI-suggested fixes with suspicion and to verify rather than trust. He had described a wave of AI-assisted security analysis over the preceding months in an October 20 Bloomberg Television interview.
Why it matters
LBTC depends on holders believing they can redeem tokens for bitcoin at parity. Restoring reserves repairs that link, but Bitcoinist noted that direct withdrawals through the federation remain subject to enhanced operational controls even though swaps have resumed, and it argued that transparency about the replacement funds would help users. Blockonomi reported that the federation thanked the Bitcoin community, Liquid users and ecosystem partners for their patience during the recovery.
What to watch
The federation said it is modernizing Liquid’s governance structure, setting clearer responsibilities and oversight, and adding technical and operational safeguards, with details due in the coming weeks. Confirmation that direct withdrawal restrictions have been lifted is the next checkpoint for users.
Sources: Decrypt, Bitcoinist, Blockonomi
