Liquid has not paid out bitcoin for L-BTC for 35 days: the reserve is 602 BTC short

What is happening now

Liquid is a Bitcoin sidechain built by Blockstream. Its main asset is L-BTC: a token that is supposed to have one real bitcoin sitting behind it on the main chain. Depositing BTC to receive L-BTC is called a peg-in, and getting the bitcoin back is a peg-out. The second one has not worked since September 6.

According to the Liquid explorer, the numbers on October 11 look like this:

The network itself is alive. L-BTC transfers between addresses inside Liquid have been running since September 10, and the network's other assets, USDT included, were not affected, Blockstream says. Only the exit to Bitcoin is shut, and the team names a single condition for reopening it: full one-to-one backing and completed security reviews. There is no date.

How 4,000 BTC left the reserve

Blockstream published its post-mortem on September 23, and what makes the story unpleasant is how ordinary it is.

• August 2. A researcher reports a bug in Elements, the software Liquid runs on. The bug had lived in the code since 2018: the cache of verified proofs built its key from only part of the data it needed.
• September 1. The fix is published in the open repository. The new code becomes visible along with it.
• September 6, 13:53 UTC. The fix itself turns out to contain a second bug: the data for the cache key was joined together without any length markers, so two different sets could produce the same string. The network accepts an invalid transaction and issues about 4,000 L-BTC with nothing behind them.
• September 6, 14:28 UTC. Thirty-five minutes later the federation signs an ordinary withdrawal, and 3,996.02 BTC leave the reserve. That leaves 197 BTC out of roughly 4,205.
• September 6, 18:26 UTC. The network is halted.

So neither keys nor people were compromised. The federation members signed the withdrawal in good faith, because the sidechain told them everything was in order.

The post-mortem contains a detail that Blockstream singles out as a failure of process. Under the network's rules, a wallet that receives peg-outs must be kept offline. At the SideSwap service the peg-out key was online and forwarded payouts automatically, and the service has admitted as much. With a manual check and a delay in place, Blockstream estimates, the bitcoin could have been stopped in time.

Why 3,400 BTC came back and 600 did not

The attackers left a message on the blockchain: "we are whitehats. contact us on chain". On September 7, after the nodes had been updated, they returned 3,400 BTC to the federation. That is about 85% of what was taken.

The rest, roughly 598.5 BTC, is still in their hands, according to analysts at TRM Labs. TRM notes that nobody has confirmed the "white hat" claim, and that the attackers seem to regard the remainder as their reward. Blockstream answered briefly on September 11: it will not pay a ransom for stolen funds and is working with police, exchanges and forensic specialists.

Hence the hole in the reserve. Until those 600 BTC come back or someone makes them good, each L-BTC is matched by 0.858 of a bitcoin, not by one.

What this means for L-BTC holders

If you hold L-BTC, there is not much you can do with it right now:

• send it to another address inside Liquid: possible;
• redeem it for bitcoin through the federation: not possible, and there is no timeline;
• sell it on an exchange: that depends on the exchange, since Blockstream itself asked platforms to pause L-BTC deposits and withdrawals.

There is little point in rushing to sell at a steep discount: the team has never said the loss would be spread across holders. But it has not promised to close the gap out of its own pocket either. The honest answer to "when" right now is that nobody knows.

The case is a good illustration of the difference between a coin and an IOU for a coin. Bitcoin in your own wallet does not depend on anyone else's reserve. L-BTC, like any wrapped token, is worth exactly what sits in the vault, and it works only for as long as the vault is open. That is why people moving money between networks increasingly pick a plain swap over a bridge: you hand over a coin on one network and receive a real coin on another. That is how any crypto exchange works, and we broke the difference down in our guide on bridge versus swap.

What the Liquid story teaches

Three takeaways are useful even to those who have never held L-BTC.

First. Most of the big thefts of recent years happened not in the blockchains themselves but at the joints between them: in bridges, sidechains and wrapped-token vaults. September was no exception, and we summed up the month in our review of $766 million in hacks.

Second. A bug fix can be a bug too. Five days passed between the patch going public and the attack: the code became open, and it was not only friends who read it.

Third. Non-custodial is about the keys, not about the reserve. L-BTC owners held their keys the whole time, and it did them no good. We explained separately how a custodial wallet differs from a non-custodial one and where the limit of your control lies.

How to exchange bitcoin with no sign-up and no wrapped tokens

At VertEXchange you swap one real coin for another: no bridges and no IOU tokens. No account, email or phone number is needed. You pick a pair, enter your wallet address and see the rate and the amount you will receive before you send anything. The coins go straight to your address: VertEXchange does not hold them.

• The fixed rate holds for about 15 minutes while the transfer is being confirmed.
• You can set a refund address: the coins go back there if the swap does not go through.
• The personal fields of an operation are deleted 24 hours after it completes.
• A support chat is on every page, and questions are resolved by the swap code.

If you need bitcoin on the main chain, the simplest way is to buy bitcoin with USDT TRC20 straight to your own address. Going the other way, you can exchange bitcoin to Ethereum, and if privacy matters to you, there is the option of BTC to Monero with no sign-up.

FAQ

What is L-BTC?

A token of the Liquid sidechain pegged to bitcoin one to one. For every L-BTC, the network's federation is supposed to hold one BTC on the main chain.

Why can't L-BTC be redeemed for bitcoin?

After the attack of September 6, 2026, the federation reserve is about 602.5 BTC short. Liquid will reopen redemptions only when the reserve covers every token again and the security reviews are finished.

How much bitcoin was stolen from Liquid?

3,996.02 BTC were withdrawn from the reserve. The next day the attackers returned 3,400 BTC, and about 598.5 BTC remain with them.

Who hacked Liquid?

Unknown. The attackers called themselves white hats in a message on the blockchain, but nothing confirms it.

Was USDT on the Liquid network affected?

According to Blockstream, no. The bug made it possible to issue unbacked L-BTC and did not touch the network's other assets.

When will Liquid resume bitcoin withdrawals?

There is no date. Two conditions have been named: full bitcoin backing for L-BTC and a completed external audit of the fixed version of Elements.